Relatively high interest rates combined with persistent inflation and material supply constraints continued to put a drag on housing market activity in the U.S. in 2024, particularly new housing starts. According to the U.S. Census Bureau and the Department of Housing and Urban Development, total housing starts in 2024 totaled 1.367 million units, a 3.8% decline from 2023. The falloff in the multifamily segment of the market, however, was more pronounced. This sector fell sharply by approximately 25%, a reflection, observers say, of overbuilding concerns and a slowdown in demand for rental apartments.
Looking at the glass half full, however, the rate of decline in total housing starts slowed significantly last year. In 2023, for example, housing starts—single-family and multifamily starts combined—were off by double digits, 11.7%, to be more precise. And when you pull the multifamily numbers out of the equation, single-family housing starts actually rose nearly 6.5% year-over-year to approximately 1.01 million units, marking a strong rebound from the dip in 2022–2023.
“While we saw encouraging signs in the single-family sector, the overall decline in housing starts underscores the persistent affordability and regulatory challenges that continue to limit our ability to meet demand,” said Robert Dietz, chief economist at the National Association of Home Builders (NAHB), following the release of the total numbers back in January. “We need more policy solutions to close the supply gap.”
More encouraging news: A look at the monthly trends in 2024 showed a housing market adapting to interest rate fluctuations and shifting demand. The year began sluggishly, with seasonally adjusted annual rates (SAAR) of around 1.33 million in January. Starts bottomed out mid-year, averaging roughly 1.24 million in July, before recovering strongly to reach 1.514 million SAAR by December, according to Census Bureau numbers. This trend, observers said, was driven in part by builder incentives and an improving economic outlook.
“Builders adjusted the market by offering more incentives and constructing smaller, more affordable homes,” noted Jerry Konter, NAHB chairman. “These efforts are helping to maintain buyer interest despite ongoing headwinds.”
The housing market’s performance in 2024, industry observers note, also signal a return to levels seen prior to the pandemic. For example, total housing starts were 1.25 million, 1.29 million and 1.38 million in 2018, 2019 and 2020, respectively. Not enough to pop the cork in celebration by any means, but movement that signals somewhat of a return to normalcy.
“When compared to the pre-COVID-19 years, 2024 still reflects a market operating below its full potential,” said Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analysis, NAHB. “Total housing starts remain lower than the 1.5 million-plus annual average needed to meet long-term demand, which continues to put upward pressure on prices and rents.”
Across the U.S., housing activity in 2024 varied widely by region, with economic conditions, demographic trends and regulatory environments all contributing to divergent outcomes. Each region grappled with its own unique set of challenges and opportunities, shaping how the housing market evolved over the year.
Here’s how things shook out by region in 2024:
South
The southern U.S. continued to lead the country in housing activity. In fact, this section of the country was responsible for nearly 60% of all new housing starts in 2024, according to Census Bureau numbers. In April alone, the region recorded 818,000 housing starts on a seasonally annual adjusted rate. The South benefitted from robust population growth, favorable land costs and comparatively relaxed zoning regulations. States like Texas, Florida and Georgia, for example, saw persistent demand from both domestic migrants and corporate relocations.
Activity in this part of the U.S. is so robust, analysts say, that it is poised to eliminate its housing shortage within three years if current construction levels persist. “The South is well-positioned to address its housing shortage thanks to flexible land-use policies and sustained in-migration,” said Danielle Hale, chief economist at Realtor.com. “If these trends continue, the region could see a full recovery faster than the rest of the U.S.”
To that end, builders in the region aggressively targeted first-time buyers and retirees, driving demand for both single-family homes and multifamily developments.
West
While the south showed strength across many cities and counties, the results were more mixed in the western portion of the U.S. After years of underbuilding and regulatory constraints, parts of the west experienced a rebound in 2024. By May, housing starts in the West rose more than 15% year-over-year to reach 274,000 seasonally adjusted annualized units. California, Arizona and Colorado led the resurgence last year, although high land prices and labor shortages remained a limiting factor.
Moreover, policy changes supported this recovery. In Portland, Ore., for instance, zoning reforms implemented in 2023 to support middle housing began to yield results. This generated more than 1,400 new construction housing permits issued for new units under the new rules. In addition, California passed permit streamlining laws in mid- 2024 aimed at reducing the entitlement process, especially in high-density areas.
Midwest
Housing activity in the Midwest remained relatively stable last year. Since the start of 2024, activity in this segment remained modest, but the tide began to turn in April—a period when building often resumes amid more clement weather conditions. April 2024 saw around 332,000 seasonally adjusted housing starts in the region. At the same time, the region faces long-term challenges related to slower population growth and urban depopulation in legacy cities.
While affordability is a relative strength, the pace of construction remains slow. According to Realtor.com estimates, it would take more than four decades for the Midwest to close its housing shortage at the current building rate. Builders in cities like Indianapolis and Columbus focused on affordable single-family homes and build-to-rent developments.
Northeast
Of the four major regions, the Northeast experienced the steepest declines in 2024, with housing starts falling over 40% year-over-year in April to just 326,000 SAAR. Observers attributed the weak performance to high regulatory barriers, a limited land supply and demographic stagnation. In particular, New York, Massachusetts and Connecticut continued to grapple with high construction costs and limited new supply. However, some urban centers, such as Jersey City and parts of Boston, introduced new incentives to encourage multifamily housing construction near transit corridors. That being said, most of the region’s housing challenges remained unresolved in 2024.
Mitigating factors
Elevated mortgage rates continued to act as a headwind. Throughout 2024, the average 30-year fixed mortgage hovered between 6.6% and 7%, down from the peak in 2023 but still historically high. This constrained buying power for many first-time homebuyers, forcing some to delay purchases or opt for smaller homes.
Builders responded with interest rate buy-downs and smaller square footage offerings. According to NAHB, more than 35% of builders offered mortgage incentives to attract buyers. “Affordability remains the biggest hurdle for many buyers,” said Jessica Lautz, deputy chief economist at the National Association of Realtors (NAR). “Without significant declines in interest rates or increases in inventory, we expect constrained purchasing power to persist.”
Another factor that impacted new home construction activity last year was high material costs. While lumber prices stabilized somewhat compared to pandemic highs, input costs remained elevated. Builders also reported higher prices for concrete, dry-wall and insulation materials. These costs contributed to limited speculative building and tighter profit margins.
Labor shortages was another persistent issue. Builders reported lack of trained labor remained a major issue in 2024, as the residential construction industry continued to struggle to hire enough electricians, framers and plumbers, particularly in high-growth states. According to a Home Builders Institute (HBI) report, the industry faced a shortfall of nearly 400,000 skilled workers in early 2024.
Policy efforts to increase immigration and expand vocational training had been proposed last year, but they had limited impact within the year.
Another issue builders had to contend with was related to permitting guidelines and regulations, with cities and states across the country taking in 2024 to streamline permitting processes. For instance, California’s SB 423—passed in 2023 and implemented in 2024— mandated expedited approval for certain housing projects. Meanwhile, Portland’s zoning reform allowed duplexes and triplexes in formerly single-family-only zones. However, despite these efforts, many jurisdictions remained slow to adapt. NIMBY (Not In My Backyard) sentiment continued to stall major projects, especially in suburban and coastal areas, observers noted.
New, existing home sales
New home sales rose modestly in 2024 as builders continued to capitalize on low resale inventory and increased interest in new construction. According to data from the U.S. Census Bureau, annual new home sales reached approximately 680,000 units—up about 5% from 2023. Builders offered price reductions, mortgage rate buy-downs and other incentives to maintain buyer interest amid ongoing affordability concerns.
“New construction has become a more viable option for many buyers, especially as existing homeowners hesitate to list due to low-rate mortgages,” NAHB’s Konter noted. “Builders are meeting this demand with smaller, more efficient homes.”
Meanwhile, existing home sales remained constrained throughout 2024, largely due to the “lock-in effect”—or homeowners staying put to preserve their historically low mortgage rates. NAR reported that existing home sales fell to an annual pace of approximately 4.2 million units in 2024, down slightly from 4.5 million in 2023.
“Many potential sellers feel financially stuck,” NAR’s Lautz stated. “Their current mortgages, often under 4%, discourage listing their homes in an environment where borrowing costs are nearly double. This has significantly reduced supply and stifled transaction volume.”
Other observers agreed. “With fewer existing homes available, especially in affordable price tiers, buyers are increasingly turning to new construction,” noted Danielle Hale of Realtor. com added. “But the overall market remains inventory-starved.”
In challenging economic times, one cannot overestimate the intangibles. This includes sentiment about the broader builder community. According to the NAHB/Wells Fargo Housing Market Index, builder sentiment fluctuated through 2024. While confidence rose in the second half of the year, concerns about affordability and rates persisted. Many large homebuilders, including D.R. Horton, Lennar and Pulte Group, reported higher orders in Q4 2024 compared to the same period in 2023. Lennar noted that cancellations had declined from early 2023 peaks, and buyer interest was strongest in Texas, Florida and North Carolina. PulteGroup emphasized the growing popularity of townhomes and smaller lot developments as ways to address affordability. And D.R. cited late-year demand in key Sunbelt states.
Of course, there’s a direct correlation between softness on the new construction side of the business and activity on the rental side. And as everyone knows, the struggling multifamily side of the business is heavily dependent on not only rental demand but the ability and willingness of property owners to invest in those dwellings. While multifamily starts declined nationally, demand for rentals remained strong in core urban areas. However, a large supply of units delivered in late 2023 and early 2024 in cities like Austin, Phoenix and Nashville created temporary oversupply, leading to slower rent growth. The industry also saw institutional investors pulling back from new multifamily development but remained active in acquiring single-family rental portfolios.
Outlook for 2025
Industry experts entered the new year cautiously optimistic about the prospects for a more robust rebound in the housing market. With mortgage rates expected to moderate and labor markets stabilizing, many are hoping housing activity will pick up in several markets.
Heading into 2025, most analysts forecast modest improvement in the housing market. The Congressional Budget Office (CBO) projects housing starts to average 1.6 million units annually through 2030 to meet demand. If mortgage rates trend downward and regulatory reforms continue, construction could accelerate.
NAR executives expect a gradual improvement in existing home sales volume as more homeowners become comfortable trading up or down despite higher rates. “We are seeing early signs of thawing in some markets where inventory pressures are easing slightly,” NAR’s Lautz said. “The Midwest and Southeast, in particular, could see more transactions in 2025 as affordability improves marginally.”
Hale, the chief economist with Realtor.com, is in agreement. “As builders continue to tailor new homes to match consumer budgets—and as demand remains strong from Millennials forming households—we’re likely to see momentum shift upward.”
Ali Wolf, chief economist at Zonda, concurred, adding: “While the challenges are real, there is underlying strength in household formation, job growth and builder resilience.” If rates ease into the low 6% range, we could see a significant pickup in both new and existing home sales later this year, he added.
What’s critical now, according to industry observers like NAHB’s Konter, is reducing bottlenecks—whether it’s zoning laws, permitting delays or material shortages. “If policymakers support these changes, the construction industry can play a central role in restoring balance to the housing market.”
Overall, 2025 will be shaped by whether interest rates decline meaningfully, how quickly reform efforts take hold at the local level, and whether income growth can catch up to rising home prices.
As of now, it appears that the Federal Reserve is not yet prepared to make a move on interest rates. During its meeting earlier this month, the Fed decided to hold rates as is—for now—citing the lack of evidence that the economy is slowing. Although it acknowledged that swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate remains low, according to the Fed, and labor market conditions remain solid. Moreover, inflation remains somewhat elevated.
“To the surprise of nobody, the Fed kept rates unchanged during the June meeting,” said Elliot Eisenberg, founder and CEO of Graphs & Laughs. “Jerome Powell [Fed chairman] deftly suggested that the Fed could adjust to what comes next, while simultaneously admitting it has no idea what to expect. As for the dot plots suggesting two 25bps rate cuts, ignore them. In this environment of extreme policy uncertainty, they’re meaningless. The Fed clearly feels the labor market hasn’t sufficiently buckled to warrant rate relief.”
The Federal Reserve Committee has long stated that it seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. In support of its goals, the committee decided to maintain the target range for the federal funds rate at 4.25 to 4.5%. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee said it will carefully assess incoming data, the evolving outlook and the balance of risks. It will continue reducing its holdings of treasury securities and agency debt and agency mortgage-backed securities.
At the same time, the Federal Reserve signaled the possibility of two rate cuts by the end of 2025. However, internal disagreements persist, with several Fed officials opposing any cuts this year. Market expectations suggest a strong chance of at least one rate cut by September and possibly two by year’s end. Again, the Fed remains cautious due to ongoing inflation risks, including potential impacts from tariffs and a resilient labor market. Most analysts believe a rate cut in July is unlikely, making September the more probable starting point—assuming inflation continues to ease and the economic outlook remains stable.
Overall, the likelihood of interest rate cuts in the second half of the year is moderate to high, but the exact timing will depend on future inflation trends, labor market data and potential geopolitical developments outside the Fed’s control that could affect the broader economy—not just domestically but globally.
Meanwhile, housing affordability remains a key challenge. As of late 2024, only about 37% of U.S. households could afford a median-priced home, down from 47% in 2019. Addressing this issue will require a combination of zoning reform, federal incentives and innovation in construction. For now, the price of construction materials remains elevated due to tariffs on imported lumber, steel and aluminum.
“Our focus remains on delivering affordable homes and navigating supply-side challenges,” said Paul Romanowski, CEO of D.R. Horton, the nation’s largest homebuilder.
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