By Alice Seeley
New construction slowed last month as homebuilders broke ground on new homes at an annual rate of 1.64 million units, according to a Feb. 17 report by the U.S. Census Bureau and Department of Housing and Urban Development. This is a 4% decrease from January and below what economists had predicted. However, new housing permits have increased by nearly 1% since December.
Even though homebuilder confidence decreased in February, the demand for homes remains strong. Odeta Kushi, the deputy chief economist at First American Financial Corp, said the decrease is due to “builders continuing to face supply chain disruptions, price increases, and concerns that declining affordability will price out some potential buyers.”
The prices of goods used in house construction increased 3.6% in January. The index was led higher by a 25.4% jump in softwood lumber prices, which is used for framing, and 9.0% price increases for indoor and outdoor paint according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics.
The National Association of Home Builders reported that overall building materials prices had increased 28.7% since January 2020. The group said that building material production bottlenecks were delaying projects and that “many builders are waiting months to receive cabinets, garage doors, countertops, and appliances.”
According to the Mortgage Bankers Association, the 30 year- fixed mortgage rate increased to above 4% last week for the first time since 2019. Economists expect this will slow the demand for housing, especially among first-time buyers.
“Rising mortgage rates pose a significant risk to housing demand, but it’s unclear what type of lag would exist for this impact to appear in the construction data,” Isfar Munir, an economist at Citigroup, said.
The housing market currently has a small supply of homes for sale and a median national price of $358,000.