Housing starts in the U.S. fell 7.0% in July compared to the prior month, an indication that construction supply lines are still choked and near record-high home prices are shutting out scores of buyers.
The U.S. Commerce Department‘s Census Bureau said housing starts dropped to a seasonally adjusted annual rate of 1.534 million units last month, which was marginally worse than June’s 1.65 million units.
Economists did find some silver linings in the data, however.
“Both single-family and multifamily starts declined in July relative to June, but single-family starts remain almost 12% higher than last year,” said Mike Fratantoni, the Mortgage Bankers Association‘s chief economist. “There are now almost 690,000 single-family homes under construction – the largest number since 2007. This is clearly a positive sign given the remarkably low levels of inventory on the market.”
Fratantoni noted that permits for single-family homes dropped slightly from June, but were higher than July 2020 and remain higher than the level of starts. “The pace of construction should continue to increase, particularly if supply-chain constraints begin to loosen,” he said.
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Odeta Kushi, First American‘s deputy chief economist, pointed to the issuance of single-family permits dropping 1.7% from June as an indicator to watch for.
“While single-family starts and permits are above their pre-pandemic pace, the moderation is consistent with builder sentiment,” she said. “August’s homebuilder sentiment fell to its lowest level since July 2020. Yet, it’s important to point out that home builder sentiment is less ‘bullish’ as opposed to actually ‘bearish.’ Less bullish sales conditions and prospective buyer traffic may be related to declining affordability in recent months.”
Indeed, although lumber prices have fallen from a record high of $1,711 per thousand board feet in May down to roughly $483 Tuesday, land and labor shortages hamper homebuilders.
“Limited access to key building supplies has upped prices for materials and translated to higher list prices for would-be homebuyers,” said Zillow economist Matthew Speakman. “Home shoppers remain eager and demand for housing remains strong, but sticker shock may also have prevented some shoppers from committing to a purchase. The supply backlog has also limited homebuilders’ ability to confidently pencil out the finances surrounding potential projects – a significant constraint for the typically risk-averse industry.”
Buyer demand remains strong and residential construction workers have increased in 11 of the last 12 months, according to Census data, fundamentals that suggest an uptick in future construction.
Regionally, housing starts increased by 1.6% in the South, were flat in the West, fell 1.5% in the Northeast and dropped 1.1% in the Midwest.