By Emma Nitzsche
Overall housing starts beat expectations and increased 6.3% this June to an adjusted rate of 1.64 million units, according to data from the Commerce Department. However, permits for future construction fell to an eight-month low, signaling growing hesitancy caused by expensive building materials and shortages of labor and land.
Housing starts were significantly lower in May, recorded at a rate of 1.546 million units. Despite the increase in June, the month of March holds the record, with a start rate of 1.737 million units, the highest level since July 2006.
However, falling permit numbers for single-family and multifamily markets put a damper on inventory growth. Permits for future home building fell 5.15 percent to a rate of 1.598 million units in June.
The backlog of single-family homes yet to be started grew in June to the highest level since October 2006.
“The recent weakening of single-family and multifamily permits is due to higher material costs, which have pushed new home prices higher since the end of last year,” Robert Dietz, the National Association of Home Builder’s Chief Economist, told CNBC.
The Commerce Department on Tuesday suggested the severe shortage of houses could persist for a while. Compared to early May, lumber futures dropped nearly 70%, but builders are still paying more for steel, concrete, and lighting.
“Whole lumber prices have just recently begun to trend downward. Builders continue to deal with rising prices of other building materials, such as oriented strand board, and major delays in the delivery of these goods,” said Chuck Fowke, chairman of the National Association of Home Builders.
Realtors estimate that single-family housing starts and completion rates need to be between 1.5 million and 1.6 million units per month to close the inventory gap.
Meanwhile, shortages for common household appliances like refrigerators and dishwashers continue to surge.
“Reports of multi-month delays in the delivery of window, heating units, refrigerators, and other items have popped up across the country, delaying delivery of homes and forcing builders to cap activity. Many builders continue to point to a shortage of available workers as a separate challenge,” Matthew Speakman, an economist at Zillow, told Reuters.
When consumers cannot build a home, they are forced to turn existing homes. Unfortunately, consumers are faced with a shortage of homes available for sale. The inventory of previously owned homes is near record lows, leading to double-digit growth in the median house price. For instance, the most recent Mortgage Bankers Association Builder Application Survey showed mortgage applications for new home purchases fell 23.8% in June compared to last year’s figures. Compared to May of this year, applications dropped 3%.
With more people working from home in the past year, a spacious home became a necessity for many consumers. Additionally, some people wanted to move to the suburbs and away from high-density cities to avoid contracting coronavirus in urban areas. However, this trend should subside as more companies are calling their workers back into the office of major city centers.