Unusually cold weather and frigid temperatures from snowstorms slowed the construction of single-family housing units in January. Would-be homebuyers and households holding out to upgrade in the coming months could face even higher costs as tariffs for material imports and hostile mortgage rates put a housing rebound further on ice.
January Freeze Brings Halt to New Housing Starts
Adjusted data show that new housing starts were 8.4% lower in January 2025 compared to December’s revised 2024 figures and approximately 13% down from January 2024. New housing starts for the first month of the year dropped to 993,000 versus 1.08 million the month before. January rates for buildings of five or more units were 355,000.
New building permits authorized for private-owned housing units experienced similar stagnation. New building permits for January were at a seasonally adjusted rate of 1.48 million or 0.1% above the revised December rate of 1.48 million. In total, rates for January 2025 were 1.7% lower compared to January 2024.
Disruptions in new housing starts and authorizations follow on the heels of an overall slower January, with cold weather conditions rippling through the consumer retail sector and the job market. Wider economic activity was largely subdued in the first quarter of the year.
However, declining single-family housing construction seems to stabilize following bigger-than-expected increases near the end of 2024 as communities recover from Hurricane Helen and more extreme weather events.
Rate Rollercoaster Continues
The outlook for homebuilding is now more cloudy compared to a year ago. Mortgage rates continue to sit at elevated levels despite falling to an 18-month low in September 2024. The average 30-year mortgage rate fell to 6.09% following the Federal Reserve’s jumbo-sized rate cut in September last year.
However, rates have ticked higher in recent weeks, peaking at 7.04% mid-January and maintaining this level before sliding back down to 6.84% in the week ending February 14, 2025, according to Freddie Mac.
The 15-year mortgage rate underwent a similar back and forth, dropping as low as 5.15% during the third quarter of last year, and peaking again at 6.27% in recent weeks. A dovish Federal Reserve could keep interest rates higher for longer as central bank policymakers are backpedaling on the possibility of more than two rate cuts in the year ahead.
Sticky inflation data have pointed central bankers towards a more hawkish rate decision in the coming months as inflation continues to remain stubbornly above the Fed’s 2% target rate.
Despite the whiplash and surging borrowing costs the majority of current mortgage borrowers currently have an interest rate below 5.0%. In fact, 73% of U.S. mortgage borrowers currently sit with an interest rate below this threshold, a figure that has steadily been on the decline since 2022, when 85% of borrowers had a low interest rate – a 12.2% fall.
Trump, Tariffs, Trade, And Timber Prices Squeeze Builders
Limited building activity caused by abrupt weather changes isn’t the only storm home builders have been bracing for. President Trump’s aggressive trade tariff policies could create further turbulence for the housing market, and push inflation higher across the board.
Home builders are not only dealing with the possibility of a 25% levy on imports from Canada and Mexico–which are on hold until March–but the president recently raised tariffs on steel and aluminum imports to 25%. Some supporters might recall, but this isn’t the first time the president has raised tariffs on these materials.
Back in 2018, when Trump was serving in his first term, the president under Section 232 authority imposed a 25% tariff on selected steel imports and a 10% tariff on certain aluminum imports.
For the most part, the U.S. relies more on imported aluminum compared to steel. In 2023, imported steel accounted for 26% of all U.S. steel production while 44% of aluminum used and distributed was imported from outside of the country.
Trump’s trade tariffs could put a levy on timer prices. 30% of softwood coming from international trade partners could spell more uncertainty for builders, with many concerned about how the higher prices will impact costs.
In the days following his decision to raise levies for imported materials, Trump tasked his economic cabinet to put plans together that would create reciprocal tariffs on those countries that tax U.S. imports.
The decision to impose reciprocal tariffs could send shockwaves across the global economy and place supply chains under immense pressure as trade partners begin to look at alternatives to the U.S.
Current expectations regarding the pro-tariff Trump are mixed. Industry experts, bankers, and a handful of supporting economists have openly praised Trump’s decision to raise tariffs on imports from neighboring trade partners and those elsewhere.
However, consumers and home buyers might share a less optimistic view as the outlook indicates that Trump’s so-called “pro-business agenda” could be hampering a possible rebound for the housing market and other key corners of the economy.
Business As Usual?
Home builders are up against a series of challenges, and the president’s aggressive economic agenda could create turbulence for the housing market, pushing housing prices higher and keeping rates elevated as the central bank continues to dampen hot-running inflation. How the housing market will look in the coming months remains murky, and would-be home buyers might need to hold out for longer before they can find their forever home.
