U.S. Construction Market Report – January 2025

Overview: The latest U.S. construction data show a mixed picture at the start of 2025. 

Residential construction activity softened in January, with housing starts pulling back even as building permit issuance held steady​ census.gov. 

Commercial construction also slowed, as new project groundbreakings declined from late-2024 levels​ construction.com

Below we break down the key statistics for single-family homes, multi-family homes, and commercial projects, including comparisons to last month and last year, as well as insights into regional trends and influencing factors like economic conditions and policy.

Residential Construction

Single-Family Homes – Permits and Starts

Single-family home construction indicators were relatively stable. Building permits for single-family houses were issued at a seasonally adjusted annual rate (SAAR) of 996,000 units in January, virtually unchanged from December’s pace​ census.gov. This permitting level is about 3.4% below the rate from January 2024​ advisorperspectives.com, reflecting a modest year-over-year dip. Housing starts of new single-family homes came in at 993,000 units (SAAR) for January, which is an 8.4% decline from December’s pace​ census.gov. On a year-over-year basis, single-family starts were down about 1.8% compared to January 2024​ economics.td.com, a slight decrease that points to lingering caution among homebuilders.

Key factors tempering single-family construction include high mortgage rates and construction costs. Builders continue to face housing affordability challenges that are sidelining some buyers​ eyeonhousing.org, hbsdealer.com. The average 30-year mortgage remains above 6%, and elevated land, labor, and material costs are squeezing builder margins. According to NAHB Chairman Carl Harris, builders are “approach[ing] the market with caution” amid these conditions​ hbsdealer.com. Policy uncertainties – such as the prospect of new tariffs on building materials and regulatory changes – are also creating headwinds, prompting a conservative approach to new single-family development​ hbsdealer.com. On the upside, builder sentiment (as measured by the NAHB Housing Market Index) has shown some resilience, and many builders expect sales conditions to improve later in the year as interest rates stabilize.

Multi-Family Homes – Permits and Starts

The multi-family sector (apartments and condominiums) is experiencing a bit of a cooldown from the frenetic pace of the past few years. In January, building permits for multi-family housing (structures with 5+ units) were issued at a 427,000 unit annual rate​ census.gov. This is roughly 1% lower than December’s rate and essentially flat versus a year ago (up only ~0.2% from January 2024)​ advisorperspectives.com advisorperspectives.com. Multi-family permitting has thus plateaued at a historically moderate level, signaling that developers are being selective with new apartment projects amid rising supply.

Housing starts for multi-family projects totaled 355,000 units (SAAR) in January​ census.gov. This represents about an 11% drop from December’s pace​ realpage.com, giving back some of the gains seen at the end of 2024. Despite the monthly decline, multi-family starts were actually up approximately 2.3% compared to January 2024​ realpage.com. In other words, multi-family construction is still slightly ahead of its year-ago pace, but growth has slowed significantly from the double-digit surges seen in 2022. Developers remain cautious about adding too many new rental units in the face of elevated vacancies in some markets and significant new supply coming online. One notable trend is the shift in multi-family development toward smaller projects. While large 5+ unit building permits were flat year-over-year, the niche “plex” segment (2–4 unit buildings) saw a jump in permits (+17% year-over-year) albeit from a small base​ advisorperspectives.com. This could indicate increased interest in duplexes and fourplexes, possibly spurred by local zoning changes in some regions to allow more “missing middle” housing.

Construction Completions and Inventory

Despite the recent easing in housing starts, the pipeline of homes under construction has translated into a high volume of completions. In January, housing completions surged to a 1.651 million unit annual rate – about 7.6% above December’s pace and nearly 10% higher than a year ago​ census.gov. This was the strongest completion rate in over a decade. Breaking it down, single-family home completions reached 982,000 units (SAAR) (up **7% month-over-month, +8.9% year-over-year)​ realpage.com. Multi-family completions jumped to 652,000 units (SAAR), a hefty 11.8% higher than January 2024​ realpage.com. These figures reflect the culmination of projects started during the building boom of 2021–2022 now coming to fruition.

As a result of the robust completions, the inventory of new homes for sale has expanded. At the end of January, there were an estimated 495,000 new single-family homes for sale, which corresponds to a 9.0-month supply at the current sales rate​ census.gov. This new-home inventory is about 7% higher than a year ago and is at the highest level since 2008​ newsweek.com ​census.gov. The elevated months’ supply indicates a shift toward a buyer’s market for new construction, in contrast to the tight supply of existing homes (which is around a 3.4-month supply)​ eyeonhousing.org. Many of these unsold new homes are still under construction or not yet started, giving builders some flexibility in adjusting to market conditions.

For multi-family, the wave of completions is adding to rental supply. Nearly 1 million apartments were under construction at the end of 2024 – the most since the 1970s – and that backlog is now finally easing​ nahb.org. The number of multi-family units under construction in January was down about 22% from a year earlier (roughly 751,000 units still in process)​realpage.com, as projects move to completion. This new supply is pushing up vacancy rates modestly in some apartment markets and keeping rent growth in check. However, demand for rentals remains solid in many regions due to strong job growth and the high cost of homeownership. In fact, occupancy levels in existing multifamily properties remain high (NAHB’s Multifamily Occupancy Index stood at 81, well into positive territory)​ nahb.org. The robust occupancy suggests that while there may be pockets of oversupply, overall the market is absorbing the new units reasonably well – albeit with the help of concessions in some locales.

Commercial Construction

Permitting, Planning, and Pipeline

Tracking commercial construction permits is more challenging than residential, since they are often measured by project value or square footage rather than unit counts. However, available indicators suggest that commercial permitting activity has cooled slightly in recent months. For instance, in late 2024 the number of commercial construction permits was running a few percent lower than the prior year in many areas​ expresspermits.net. Anecdotally, developers have pulled back on speculative office and retail projects, given high interest rates and shifts in space usage (e.g. remote work damping office demand, e-commerce altering retail needs). On the other hand, permitting remains active for certain commercial categories like warehouses, manufacturing plants, and data centers, thanks to trends in logistics and industrial expansion.

A useful forward-looking gauge is the Dodge Momentum Index (DMI), which tracks commercial and institutional projects entering planning. The DMI jumped 5.6% in January and is up a remarkable 26% compared to a year ago​ constructiondive.com. This surge in planning suggests that many owners are moving ahead with projects to be started later in 2025. Commercial planning (which includes offices, retail, hotels, warehouses, etc.) rose 37% year-over-year – a very strong gain, heavily boosted by numerous data center projects in the pipeline​. Even excluding data centers, commercial planning was up 13% on the year​ constructiondive.com. Institutional planning (schools, hospitals, government buildings) was up 9% year-over-year​. These planning figures indicate that, despite current headwinds, there is pent-up demand for nonresidential construction that could translate into stronger building starts in the latter half of 2025.

Contractors’ backlogs remain healthy as well. Associated Builders and Contractors (ABC) reported that the average construction backlog was 8.4 months in January, roughly the same as it was at the start of last year​ abc.org. Backlog for commercial & institutional projects has eased slightly (it’s near a two-year low in some segments)​ constructiondive.com, but generally builders still have plenty of work under contract. This stable backlog aligns with contractors’ cautious optimism that while new bookings slowed a bit over the past year, they haven’t fallen off a cliff.

In summary, commercial permitting and planning data send a mixed signal: current permit volumes are a bit lower than peak, but the strong planning pipeline for certain project types (especially infrastructure-adjacent and tech-related buildings) points to a possible rebound in starts down the road. Much will depend on financing conditions – if interest rates ease and lending for commercial projects becomes more accessible, many of these planned projects could break ground.

Construction Starts by Sector

Commercial construction starts (actual groundbreakings on nonresidential buildings) have recently been in a lull, especially relative to the highs of the past year. In January, total nonresidential building starts fell sharply, contributing to an overall slowdown in construction activity. According to Dodge Construction Network, nonresidential building starts dropped 18% in January (month-over-month) to a SAAR of $393 billion​ construction.com. This includes both “commercial” categories and “institutional” categories. Compared to a year ago, nonresidential starts were down 22% in January​ construction.com, reflecting a sizable year-over-year decline as the sector comes off late-2024’s elevated project levels.

Drilling down, the commercial building segment – which covers private projects like offices, retail, hotels, warehouses, and data centers – saw a significant pullback to start the year. In January, commercial starts were about 41% lower than in December​ construction.com. This steep drop is partly a reversion from an unusually strong end of 2024; Dodge noted that robust data center groundbreakings in Nov/Dec boosted prior figures, and January saw a return to more typical levels​ construction.com. With those one-time projects (e.g. massive server farm complexes) now underway, the January data show broad weakness across most commercial sectors​ construction.com. Notably, office construction starts have slowed to a trickle, as high vacancy rates persist in many cities. Hotel construction is also subdued, reflecting caution in hospitality until travel fully normalizes. On the year-over-year basis, commercial building starts were down 18% vs. January 2024​ construction.com – a substantial decline, though again this is exaggerated by last year’s data center boom.

There are a few bright spots in commercial building. Warehouse and industrial facilities continue to see investment, thanks to the resilient logistics sector and reshoring of supply chains. Manufacturing-related construction (factories, chip plants, EV battery facilities, etc.) remains at historically high levels, even though manufacturing starts in January fell 16% from December​ construction.com. The federal CHIPS Act and other incentives have spurred many large manufacturing projects that are in early stages. We also see strength in specialty commercial niches – for example, data centers, life-science lab buildings, and entertainment venues – where specific demand drivers outweigh general economic concerns.

The institutional building segment has held up better. Institutional starts were actually up 4% in January (m/m), aided by growth in healthcare and recreational facilities starts​ construction.com. Year-over-year, institutional building starts were essentially flat (down just 1%) compared to Jan 2024 ​construction.com. Schools and university projects are steady, and hospital construction has gained momentum as healthcare systems address capacity needs. Many institutional projects are public or non-profit funded, which insulates them somewhat from interest rate impacts. The passage of federal infrastructure and stimulus bills in 2021–2022 is now yielding more government facility projects (courthouses, civic centers, etc.) breaking ground as well.

To put the commercial vs. institutional split in perspective: commercial building starts (private-sector driven) are the ones experiencing a noticeable slump, while institutional starts (public/community driven) are faring much better. The expectation among industry economists is that commercial starts will gradually recover later in 2025 as financing improves. Indeed, Dodge forecasts commercial starts to rise ~5% for full-year 2024 and a further 7% in 2025, led by a rebound in retail and hotel construction as the economy stabilizes​ enr.com. For now, however, the commercial construction sector is in a soft patch, working through a backlog of projects but hesitant to initiate many new ones in certain property types.

Regional Variations in Construction Activity

Regional construction patterns in January showed considerable variation, influenced by local market conditions and even weather. In the residential sector, the West was a standout performer: it was the only region to post an increase in housing starts from December​ hbsdealer.com. Total starts in the West jumped over 40% month-over-month (with single-family starts up 24.9%) as builders ramped up production, possibly making up for weather-related slowdowns in December​ hbsdealer.com. The Northeast and South, by contrast, saw significant slowdowns in January’s housing activity – total starts fell 27.6% and 23.3% month-over-month in the Northeast and South, respectively​ hbsdealer.com. Cold winter weather and a pause after a burst of year-end building likely contributed to the Northeast’s drop. The South’s decline in January starts may reflect a modest cooldown after it led the nation in construction last year. The Midwest also saw a drop in housing starts (around 10% m/m)​ economics.td.com, which could be partly seasonal. On a year-over-year basis, Midwest housing starts were actually up strongly (+30% vs Jan 2024), while the Northeast was down about 21% year-over-year​ census.gov. This suggests that the Midwest’s housing market had an unusually weak start last winter and has since rebounded, whereas the Northeast’s housing activity has slowed over the past year.

For multi-family construction, regional differences are also pronounced. Over the past year, the South has led in new apartment construction, while the West has pulled back. Annualized multi-family permitting in the South region was up 22% year-over-year (to about 219,000 units), as Sunbelt metros continue to attract robust apartment development​ realpage.com. In contrast, the West region’s multi-family permits were down 23.6% year-over-year​ realpage.com, indicating a significant slowdown in new projects on the West Coast – likely due to concerns about oversupply in some markets (e.g. Phoenix, Las Vegas) and tighter financing. The Northeast and Midwest also saw multi-family permit declines of 17.6% and 4.2% respectively over the year​ realpage.com. However, when looking at starts (which can be lumpy for multi-family), the Midwest and West saw increases in multi-family starts year-over-year (+71% and +21%, respectively) thanks to a few large projects breaking ground, while the Northeast and South saw declines in multi-family starts vs. a year ago​ realpage.com. This volatility underscores how just a handful of big apartment developments can sway regional figures.

In the commercial and institutional construction arena, regional trends tend to follow economic growth patterns and specific project allocations. In January’s data, total construction starts (including nonbuilding infrastructure) rose in the Northeast and South Central regions, but fell in the Midwest, South Atlantic, and West​ construction.com. The Northeast’s nonresidential sector got a boost from some major project groundbreakings – for example, a $5 billion hospital campus in Dallas, Texas (South Central) and a $333 million psychiatric hospital in New York were among the largest projects to break ground in January​ construction.com. The South Atlantic region (which includes Florida, Georgia, the Carolinas) saw a dip, possibly because it had an exceptionally high level of activity last year that is normalizing now. The West saw overall construction start declines despite the uptick in homebuilding; this may reflect a slowdown in big tech-related projects in California compared to a year ago. Regional economic conditions – such as population growth in the South and West versus stagnation in the Northeast/Midwest – continue to shape construction demand. For instance, the Sunbelt states are generally seeing more residential and warehouse construction, whereas the Northeast is seeing more institutional renovation and infrastructure work. Additionally, weather and seasonality play a role: a milder winter in the West enabled more January construction, while severe cold/snow in parts of the Northeast clearly held back activity there.

Regional policy differences are also influencing construction. States in the Northeast have implemented tighter energy codes and affordable housing requirements that can lengthen project timelines, possibly contributing to slower permitting. In Western states like California, some cities have imposed moratoria or higher costs on warehouse and distribution center construction, which may be cooling that segment. Meanwhile, several Southeastern states continue to offer business-friendly incentives and less restrictive zoning, supporting higher levels of new development. These policy factors, combined with economic drivers, help explain the geographic patchwork of construction growth observed in the latest data.

Outlook – Influencing Factors and Expectations

Looking ahead, industry experts expect the construction landscape to gradually improve as we move into mid and late 2025, but several key factors will influence the pace of building:

• Interest Rates and Financing: High borrowing costs have been a primary drag on both residential and commercial development. The Federal Reserve’s aggressive rate hikes last year pushed mortgage rates to ~7% and increased commercial loan rates, making projects more expensive to finance. Many developers adopted a “wait and see” approach as a result. The consensus forecast is that the Fed is at or near peak rates, with potential rate cuts in the latter half of 2025 if inflation continues to ease. Dodge analysts note that many projects are likely to “move through the planning queue slowly, until the Federal Reserve resumes cutting rates in the back half of the year.”​ construction.com If and when rates begin to fall, builder and developer confidence should get a boost, leading to re-acceleration in construction starts – especially for interest-sensitive categories like single-family homes and office buildings.
• Economic Growth and Job Market: The broader economy remains a wildcard. Job growth has been solid and unemployment low, which supports housing demand (household formation) and certain types of commercial construction (e.g. warehouses, offices in growing job hubs). However, concerns about a possible economic slowdown or recession persist. A softening economy could curtail demand for new commercial space and high-end housing. On the other hand, if the economy achieves a “soft landing” with continued modest growth, that would be a positive scenario for construction. Regions with stronger employment gains (the South and Mountain West) will likely continue to see outsized construction activity. Additionally, the manufacturing construction boom driven by federal investment (e.g. semiconductor fabs, EV plants) is expected to keep that sector busy regardless of short-term economic fluctuations – a buffer for nonresidential construction spending.
• Policy and Regulatory Environment: Government policies are playing an increasingly important role in construction trends. Infrastructure funding from the 2021 Bipartisan Infrastructure Law and 2022 Inflation Reduction Act is beginning to flow into projects – this should bolster not just roads and bridges but also related commercial development (e.g. factories, utilities, transit-oriented development). However, other policy moves could constrain builders. Notably, the U.S. has considered new tariffs on construction materials (steel, aluminum, lumber imports), which could raise costs​ constructiondive.com. In early February, a proposal for additional tariffs on steel/aluminum was announced, adding to contractors’ cost concerns​ constructiondive.com. Trade policy uncertainty – including tariff negotiations with Canada and Mexico – is forcing builders to plan for volatile materials prices. Regulatory hurdles at the local level (zoning, permitting delays, environmental regulations) also continue to be a pain point. The NAHB cites “reducing inefficient regulatory costs” as a key lever to improve housing supply and affordability​ hbsdealer.com. Any moves by policymakers to ease land-use rules or offer construction incentives (for example, recent zoning reforms in states like California and Oregon to encourage multi-family housing) could spur additional building activity. Conversely, stricter regulations would have the opposite effect. The next year is also a presidential election cycle, which could lead to shifts or uncertainty in housing policy (such as tax incentives for homebuyers or developers).
• Construction Costs and Labor: Input costs remain elevated, though there has been some relief. Construction input prices were relatively stable in late 2024 ​constructiondive.com, but contractors report that material costs are again under upward pressure, partly due to global supply chain issues and the aforementioned tariff risks. Lumber prices have come down from 2021 peaks but are still higher than pre-pandemic norms. Cement, drywall, and electrical components have seen price increases. Labor shortages are an even bigger challenge – the construction industry’s workforce is stretched thin, with job openings still high. Wage rates for skilled construction labor are rising, contributing to overall project cost inflation. These factors can slow down projects or cause them to be deferred. However, there are signs of improvement: some supply-chain bottlenecks (like for appliances and windows) have eased, and the pace of construction cost inflation has moderated from the extreme spikes of a year ago. If contractors can secure materials more readily and hire more workers (or improve productivity), it will help projects stay on schedule and budget. Many builders are adopting innovations like off-site prefabrication and modular construction to mitigate labor shortages and speed up timelines.
• Seasonal Effects: As always, the winter months tend to be slower for construction, especially in cold climates. The January data likely reflect some normal seasonal lull. Activity should pick up in the spring. A key watchpoint will be the spring selling season for housing – if home sales show strength and builders see their finished inventory moving, they may ramp up single-family starts more aggressively in Q2. Similarly, commercial projects often break ground as weather improves. A mild late-winter/early-spring could give 2025 a head start in construction, whereas an unusually stormy spring could delay some projects.

Overall Outlook: In the near term, expect moderate construction activity – below last year’s highs, but not collapsing. Single-family homebuilding is likely to remain flat to slightly up in the coming months as builders balance inventory and await better financing conditions. Multi-family construction will probably continue to trend down from 2022’s peak levels, given the large amount of new apartments hitting the market – NAHB is forecasting an 11% decline in multi-family starts for 2025​ nahb.org before stabilization late in the year. On the commercial side, slow conditions may persist through the first half of 2025. Contractors are working through backlog, but new nonresidential starts could stay tepid until the impact of lower interest rates and improving business confidence kicks in toward year-end. The second half of 2025 could see a broad-based uptick in construction: housing demand may revive if mortgage rates dip under 6%, and commercial developers may green-light projects that pencil out under better capital costs. Sectors like infrastructure, manufacturing, healthcare, and data centers are poised to be growth leaders, supported by public funding and secular demand drivers. Risks to the outlook include a potential economic downturn, further monetary tightening, or persistent inflation keeping costs high. But if trends play out as expected, 2025 should transition to a recovery footing for U.S. construction, setting the stage for growth moving into 2026.