Is home construction entering a slowdown?

The single-family home construction industry might be headed for a slowdown. Data from the U.S. Census Bureau shows that single-family building permits dropped 7.7% year over year in October, hitting a seasonally adjusted annual rate of 1.416 million units. Housing starts didn’t fare much better, dropping 4% from one year ago.

While single-family housing completions were up 16.8% year over year, the data for starts and permits suggests there are relatively few units coming online in the coming months.

“Builders continue to face headwinds, including high construction costs and skilled labor shortages,” Odeta Kushi, deputy chief economist at First American, said in a statement. “However, demand for new homes remains a bright spot in the broader housing market, contrasting sharply with weakness in existing-home sales. Builders’ ability to offer incentives and higher inventory of new homes for sale supports this relative strength.”

The data compared to September shows a pullback as well, with permits (-0.6%), starts (-3.1%) and completions (-4.4%) all falling month over month.

Regionally, housing starts in the Northeast took a 28.7% dive relative to September but are up 9.8% year over year. Starts in the South sagged 10.2% month over month, while figures in the Midwest (+4.6%) and West (+4.6%) rose compared to September.

Newly built homes have been a bright spot in the housing market as builders have adopted a speculative building strategy. Big builders can offer better financing terms with rate buydowns and other options.

But the election of Donald Trump clouds the outlook for builders. Trump offered few details of a housing plan during the presidential campaign, althought it’s expected that deregulation, tax cuts, the release of federal land and the prospect of lower mortgage rates will be part of it.

While this could benefit some parts of the housing market, Trump’s policies on tariffs and immigration could make life difficult for builders. Data from the American Immigration Council shows that 13.7% of construction labor jobs in 2022 involved undocumented workers. Mass deportations would exacerbate a labor shortage that’s already a problem for builders.

Trump has proposed a 10% blanket tariff on all foreign goods, a 60% tariff on all Chinese goods and as much as a 100% tariff on all Mexican goods. While it’s hard to parse how these would specifically impact construction inputs — or how serious Trump is about implementing tariffs this high — it’s all but a given they would raise the prices for some materials.

Still, homebuilders are optimistic about the new administration, as the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) has risen for three straight months, including the November reading taken after the election.

“Builders are expressing increasing confidence that Republicans gaining all the levers of power in Washington will result in significant regulatory relief for the industry that will lead to the construction of more homes and apartments,” NAHB Chairman Carl Harris said in a statement about the HMI. “This is reflected in a huge jump in builder sales expectations over the next six months.”