Real Estate News & Market Insights:
- Regional correction: Oversupply in the Sun Belt, especially Florida and Texas, drove a pullback as builders correct standing inventory.
- Mixed sector trends: Multifamily starts reportedly rose, but the increase is disputed and may be revised lower.
- Cautious optimism: Builders cite stronger traffic since mid-December and NAHB forecasts a modest rebound if mortgage rates ease by 2027.
Single-family housing starts ticked up in December, but were down about 7.0% year-over-year in 2025.
According to the National Association of Home Builders (NAHB), new residential construction is expected to stay relatively flat this year, but could rebound in 2027 if mortgage rates inch lower and pent-up demand enters the housing market.
Census data released on Wednesday revealed that single-family housing starts fell about 7.3% last year, but there were wide regional variations. Single-family starts fell 8.4% in the South, and 10.7% in the West. Housing starts in the Northeast and Midwest, regions with less population growth, were relatively unchanged.
Nationally, new single-family permit authorizations fell about 10.9%, correction territory. The South, which accounted for 60% of all new authorized permits issued, experienced a 15.4% yearly decline, while permits authorized in the South declined by 6.6%. The Midwest saw a smaller 3.2% decline, and authorized permits in the Northeast were unchanged.
After ramping up speculative construction overaggressively during better-than-expected post-COVID years through 2024, homebuilders in Sun Belt – namely, Florida and Texas – stuck with an oversupply of standing inventory. The 2025 pullback in new construction is a correction to this supply imbalance.
Those market dynamics aren’t occurring in Northeastern and Midwestern states that didn’t experience the same population shifts during and after the pandemic.
“These are the states that really didn’t see the pandemic shift. So these are the states that were able to withstand the volatility much better,” Danushka Nanayakkara, AVP, Forecasting and Analysis at NAHB, said during a session this week at the International Builders’ Show (IBS).
Multifamily starts in buildings with five units or more were up about 18% in 2025, although Robert Dietz, Chief Economist at NAHB, said that some in the industry question those numbers. The government shutdown last fall could have something to do with that.
“There’s a lot of private data providers who would say multifamily construction starts were down in 2025 and the census data is wrong,” Dietz said. “I suspect when we get revisions in the Census data, it’s not going to be an 18% gain, but nonetheless, it would show an up year.”
NAHB forecasts that housing starts – single- and multifamily – will eke out a 1% gain in 2026. Nanayakkara pointed to some structural changes in homebuilding that will continue to impact the industry in the near-term.
“We have about a 300,000-person shortage of skilled labor, as well as lot issues, financing issues, and regulatory issues, which add about $94,000 per single-family home in pure regulation,” she said.
NAHB forecasts that single-family housing starts will increase 5.0% in 2027, as an expected decline in mortgage rates will likely release some pent-up demand into the housing market. Many buyers, economists and industry insiders say, are waiting for lower mortgage rates until they buy a new home.
The Federal Reserve is expected to cut rates twice this year, but Dietz doesn’t expect a sustained period of time with rates below 6.0% until 2027.
The NAHB/Wells Fargo Housing Market Index (HMI)’s builder confidence gauge is still negative this month, with a reading of 36, down six points year-over-year.
However, homebuilders at the International Builders’ Show are expressing a note of cautious optimism. Many builders report an encouraging uptick in traffic and demand since Mid-December, although it’s still too early to tell if that will carry over into a strong spring selling season.
The monthly BTIG/HomeSphere homebuilder survey of small and mid-sized homebuilders released on Wednesday found that builders reported stronger demand in January when compared with December.
According to the survey, 38% of builders in January reported higher year-over-year traffic, compared to 26% last month. Only 19% experienced a decrease in traffic in January, compared to 39% in December.
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