Housing starts fell below expectations for July according to the Department of Housing and Urban Development. The New Residential Construction report measures Starts, which specifically measure new home construction for the month as well as Permits, which were up for the month and a positive forward indicator.
The seasonally-adjusted annual rate for Starts was 1.53 million down from 1.65 million in June. Permits however increased from an adjusted rate of 1.59 million in June, to 1.64 million in July.*
Most of the increase was attributed to multi-family unit permits. Single-family permits actually fell 1.7% for the month. Single-family permits hit their lowest point since July 2020.
Part of the problem for single-family housing construction is higher costs. The current median price, $363,300 for an existing home is now 23.4% higher than a year ago. Low inventory for homes has hampered a large percentage of buyers who would eagerly buy below $300,000, but now prices have pushed many of those potential buyers to simply rent instead.
Permit increases show that builders intend to build more housing even though the percentage of new home authorizations – but not yet started homes is near an all-time high.
“Skilled labor shortages and high supply costs seem to be the main culprits for the downturn in home construction,” said Bill Banfield, executive vice president of capital markets at Rocket Mortgage. “As demand continues to overpower builders’ ability to keep up with new inventory, we will keep seeing a stressed housing market and interested buyers sitting on the sidelines until construction returns to historical levels.” *
The National Association of Home Builders (NAHB) reported that sentiment dropped 5 points in August for single-family homebuilders. Although sentiment is still considered positive overall, it is at its lowest point in the last year.
Affordability has taken a dive as well.
More than 56% of new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $79,900. This is down sharply from the 63.1% of homes sold in the first quarter of 2021 and the lowest affordability level since the beginning of the NAHB’s revised series in the first quarter of 2012. **
On a positive note, lumber prices have dropped dramatically from their highs earlier this year. Lumber has dropped to $470.90 down 72.48% from its peak of $1,711.20 in May of this year. That puts lumber at its lowest price since early July of 2020. Lumber prices might not see a similar reduction in cost for builders for several months though as suppliers work through inventory purchased at inflated prices. Though lumber is a very big component in material cost of new construction, other supplies are still experiencing high prices and supply chain shortages. Drywall, windows, and appliances have continued to squeeze costs.
Expectations are that many of these challenging conditions will ease over the coming months. As supply chain issues moderate, it is likely that material prices will settle back to something like normal – as it has with lumber.