By Natalie DeCoste
The housing market continues to experience supply shortages as housing starts experienced a decline in July.
Recent numbers from the Census and Housing and Urban Development showed that U.S. housing starts dropped by 7% during July, reaching a three-month low. This means that there were roughly 1.5 million privately-owned housing starts in July. This is below the June estimate of 1,650,000, but it is still 2.5% above the July 2020 rate of 1,497,000.
Single-family housing starts during July were at a rate of 1,111,000. That is 4.5% below the revised June figure of 1,163,000. The statistics showed how surging construction costs and home prices continue to constrain the housing market early in the third quarter.
“An underwhelming report, but not unexpected. Builders are facing multiple supply-side headwinds. We’ve all heard about lumber shortages, which luckily are starting to ease. But there’s also skilled labor shortages, shortages in appliances, and, of course, buildable lots, lack of buildable lots. And then, of course, builders have always faced regulatory burdens to building more homes. And so all of those are headwinds to building more homes, especially with the backlogs that builders are facing nowadays,” said Odeta Kushi, deputy chief economist at First American.
Despite the disappointment on the housing starts front, building permits took a positive turn. According to the Census data, building permits for privately‐owned housing units in July were at a seasonally adjusted annual rate of 1,635,000. This is 2.6% above the revised June rate of 1,594,000 and is 6.0% above the July 2020 rate of 1,542,000.
While the number is a positive indicator, it is still in the volatile multi-family home segment, which will do little to ease the current housing shortage driving up prices for consumers. Numbers for the single-family housing permits in July were at a rate of 1,048,000. This means the figure came in at 1.7% below the revised June figure of 1,066,000. Authorizations of units in buildings with five units or more were at a rate of 532,000 in July.
“We are seeing the multi-family sector regain momentum. You see rental prices increasing, specifically in Sun Belt markets. As people start to move into some of these more affordable Sub Belt markets, you start to see rental prices increase… we also need to see more building on the single-family side, because that makes up the majority of homebuilding. So it was good to see multi-family permits pick up. But we need to see the overall permits pick up as well,” said Kushi.
Other data from the report showed that the number of houses authorized for construction but not yet started last month was at the third-highest level on record. The numbers indicate that builders have remained hesitant to undertake new projects.
“There is no question that home building has hit some sort of near-term ceiling, with surging home prices reducing affordability and leading to a record drop in the proportion of consumers that feel now is a good time to buy a home,” said Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina.