US homebuilding declines, backlog grows as shortages worsen

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Construction of residential single-family homes by KB Home is shown under construction in the community of Valley Center, California, United States, June 3, 2021. REUTERS / Mike Blake

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  • Housing starts drop 0.7% in October
  • Starts of single-family homes are down 3.9%; multi-family up 6.8%
  • Building permits increase by 4.0%; single-family 2.7% gain

WASHINGTON, Nov. 17 (Reuters) – Construction of single-family homes in the United States fell in October as the number of homes approved for construction but not yet started peaked in 15 years, underscoring the disruption in the housing market due to to a continuing shortage of materials and labor.

Although Wednesday’s Commerce Department report showed an increase in permits for future housing construction, the rise was concentrated in the volatile multi-family housing segment. It won’t do much to alleviate an acute shortage of homes on the market, which has led to record annual home price gains.

“Residential housing construction activity continues to flounder,” said Christopher Rupkey, chief economist at FWDBONDS in New York City. “There are zoning issues, higher land costs, a lack of manpower, and inflation has inflated the cost of raw building materials.”

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Single-family housing starts, which represent the largest share of the housing market, fell 3.9% to a seasonally adjusted annual rate of 1.039 million units last month. The fourth consecutive monthly decline pushed housing starts to the lowest level since August 2020. Home construction fell in all four regions, with sharp declines in the Northeast, Midwest and West.

The densely populated South, where most residential construction is located, posted a 1.8% drop in single-family housing starts.

Housing starts and building permits

Residential construction has essentially stalled this year as builders battle shortages and rising commodity prices. A survey by the National Association of Home Builders on Tuesday showed that confidence among builders of single-family homes rose for the third consecutive month in November, but noted that “challenges on the supply side, especially bottlenecks in ‘strangulation of building materials and shortages of lots and labor, remain stubbornly persistent. “

Lumber, which is used for framing, remains expensive and the prices of copper, another essential material in residential construction, are high. In addition, there were approximately 333,000 job vacancies in the construction industry at the end of September. Some household appliances are rare.

Reuters Charts

Construction costs jumped a record 12.3% year-on-year in October, according to producer price data released last week.

Material compression could ease during the winter, a generally slow season for homebuilding in the Northeast and Midwest. The slowing demand for housing due to reduced affordability could also help reduce the pressure on supply.

Residential investment contracted for a second consecutive quarter in the third quarter. It is expected to remain moderate for the last three months of the year.

“Supply chain bottlenecks are likely to limit construction activity in the near term, but the supply situation is expected to improve in 2022,” said Abbey Omodunbi, senior economist at PNC Financial in Pittsburgh. , Pennsylvania. “Declining affordability and rising mortgage rates will slow demand over the next year.”

Wall Street stocks were trading lower. The dollar plunged against a basket of currencies. US Treasury prices were higher.

INCREASE IN BUILDING PERMITS

Starts of buildings with five or more units rose 6.8% to 470,000 units last month. Workers returning to reopening offices and schools for in-person learning, thanks to COVID-19 vaccinations, are fueling demand for rental apartments.

With the decline in single-family home construction, overall housing starts fell 0.7% to 1.520 million units in October.

Economists polled by Reuters were forecasting a rebound in housing starts to a rate of 1.576 million units.

Housing starts fell from the pace of 1.725 million units recorded in March, which was a high of more than 14 and a half years.

Nonetheless, housing construction remains supported by a severe shortage of former owner housing in the market, which has resulted in double-digit growth in house prices.

The backlog of single-family homes approved for construction but not yet started jumped 4.8% to 152,000 last month, the highest since August 2006. Future building permits rose 4.0 % at a rate of 1.650 million units in October. Single-family home permits rose 2.7% to a rate of 1.069 million units, leaving them just above housing starts.

Reuters Charts

Permits for buildings with five or more units jumped 6.5% to 528,000 units. Completed homes remained unchanged at a rate of 1.242 million units. Single-family home completions fell 1.7% to 929,000 units.

The stock of single-family dwellings under construction rose 1.4% to 726,000 units last month, the highest since May 2007. Multi-family dwellings under construction reached their highest level in more than 47 years.

Over time, home backlogs and rising inventories could help bring more homes to market and curb home price inflation, which has sidelined some first-time homebuyers. . However, much will depend on the provision of building materials and other inputs as well as labor.

“The recent slowdown in project completion has limited home sales in new communities,” said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina. “That said, the growing backlog of projects should keep builders busy for the next two years.”

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our Standards: Thomson Reuters Trust Principles.


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