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Elevated mortgage rates and affordability are hounding new homebuyers.

But the latest batch of homebuilding data offered a dose of optimism, even as the larger issue of housing shortages hangs over so many discussions about the US economy.

Single-family housing starts in December rose 4.1%, to a seasonally adjusted annual rate of 981,000 units, the Commerce Department's Census Bureau reported on Wednesday.

But the rebound also came with a shot of realism, with a decline in permits for future construction highlighting underlying weakness ‌in the market for builders as many homebuyers stay on the sidelines.

Homebuilder sentiment dropped further this month, according to a survey from ‌the National Association of Home Builders released earlier this week. Builders have pointed to high land and construction costs, which have also kept the prices of homes elevated compared to the incomes of people looking to buy them. More than 30% of homebuilders are offering price cuts, the association said, to try and incentivize customers to sign.

As if prospective homebuyers needed another obstacle to their housing dreams, there is now also an AI angle.

The explosion of data center construction in the US, especially in Northern Virginia, has led to the displacement of residential construction projects. As the Wall Street Journal reported this week, tech companies and data center providers are outbidding homebuilders for undeveloped land or paying them huge sums to hand over land rights previously designated for new homes.

(Coupled with energy costs, this is another way AI is becoming a new political issue.)

"We expect a gradual improvement in housing starts over the course of 2026, but that won't be apparent immediately," said Nancy Vanden Houten, lead US economist at Oxford Economics, in a note on Wednesday.

But even as housing starts came in above expectations, the monthly data is a small dent in the larger impasse over housing shortages and affordability.

As RSM chief economist Joe Brusuelas wrote in a note on Wednesday, the housing supply problem, stretching to insufficient investment since the 2008 financial crisis, highlights a policy failure that homebuilders alone may not be able to solve.

It's going to take a lot of political will to change the current state of play. And as the Fed minutes showed, President Trump's efforts to lower mortgage rates are unlikely to make much difference.

The first reason behind the supply issue, Brusuelas said, is institutional: "Zoning restrictions that prohibit multifamily housing in cities and suburbs, the lack of transportation from the outer rings of cities and the increased cost of housing construction," he wrote.

But buyer preference for larger homes is also playing a role.

The current average size of a new home is roughly 2,400 square feet, Brusuelas noted. That's about 6% to 8% larger than 25 years ago, or 30% larger than the average new home 50 years ago.

"The demand for this kind of housing adds to the affordability crisis by bidding up rents and house prices," he added.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.

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