Housing starts, permits begin 2025 in the deep freeze
Homebuilders who were hoping to start the new year off strong found activity in January to be anything but brisk.
The U.S. Census Bureau’s new construction report for January 2025 shows that housing starts fell sharply relative to December. Colder-than-normal temperatures and rising mortgage rates put the freeze on homebuilders.
“Although the year started with higher mortgage rates when compared to the same time a year ago, builders are slowly adapting to the higher-for-longer rate environment,” Zillow senior economist Orphe Divounguy said in a statement. “Instead, the unusual weather-related disruptions may have played a key role in explaining the pullback in January.”
Building permits and housing starts data might be foreshadowing a future drop in housing completions and new-home inventory.
Starts in January clocked in at a seasonally adjusted annual rate of 1.36 million, a 9.8% drop from December but flat compared to January 2024. Permitting activity recorded an annual rate of 1.48 million, flat from December and 1.7% below the January 2024 level.
Housing completions are a bright spot in the report, coming in at an annual rate of 1.65 million. That’s up 7.6% from December and 9.8% higher than in January 2024, and it serves as a welcome development for a housing market that’s still starved for inventory.
Homebuilders are facing high levels of uncertainty in 2025. President Donald Trump’s policies on tariffs have the potential to upend business models. Builders are trying to assess the likelihood and impacts of tariff threats that seem to change on a weekly basis.
The industry got a reprieve when Mexico and Canada struck deals with Trump that paused 25% blanket tariffs on the neighboring countries. But that pause expires on March 4 and there has been no updates on progress toward a longer-term agreement.
Whatever relief that pause provided was shattered last week as Trump imposed a 25% tariff on steel and aluminum, then proposed one-for-one charges that he calls “reciprocal” tariffs. That policy would result in the U.S. levying duties on imports that match export tariffs on any given good from any given country.
The situation is weighing on homebuilders. The National Association of Home Builders‘ (NAHB) monthly sentiment index fell by five points in February due to fears over tariffs, high mortgage rates and affordability challenges.
“The growing gap between completions and starts suggests some pessimism about building and selling new homes in the near future, but also some optimism about the current state of the market despite high mortgage rates,” Realtor.com senior economist Joel Berner said in a statement.
“The uptick in completions is good news for buyers, who continue to see more options available to them both overall and among newly-built homes. If builders continue to prioritize smaller, less expensive projects, we will see affordability in the housing market improve.”