While higher interest rates pushed single-family starts down in 2022 and 2023, production should move on a gradual upward path in 2024 as the U.S. Federal Reserve is on track to cut rates during the second half of the year with inflation slowing, according to economists speaking at the National Association of Home Builders' International Builders' Show in Las Vegas, Nevada.
With a nationwide shortage of roughly 1.5 million housing units, increasing the nation's housing supply will not only help tame inflation, but also ease the nation's housing affordability crisis by moving toward a healthy supply-demand balance in the for-sale and rental markets.
NAHB is forecasting two or three Fed rate cuts of 25 basis points each during the latter half of 2024, which should put mortgage rates on an uneven downward path. With economic data stronger than expected at the start of the year, mortgage rates increased from about 6.6% to 6.9% by the end of February per Freddie Mac, indicating that even with rates expected to moderate in the months ahead, it could be a bumpy path forward.
NAHB's take on the data
"While the Fed's fight against inflation is building progress, the lingering inflation challenge is housing inflation," says NAHB Chief Economist Robert Dietz. "Shelter inflation—rent and homeownership costs—are still rising at a 5.4% rate, and for the past year, more than half of overall inflation in the economy has been shelter inflation. The only way to tame shelter inflation, and get overall inflation lower, is to build more housing."
"By the end of this year, NAHB projects mortgage rates will be below 6.5% and by the end of 2025, we expect rates to be in the high 5% range," adds Dietz. "This is good news for builders, housing demand and housing affordability. Home builders continue to contend with elevated construction and regulatory costs. Indeed, regulatory costs, which include complying with building codes, zoning issues and other costly challenges, make up almost 24% of the final sales price of a newly built single-family home, or $93,870 per new home.