Photo: James Bombales

Homebuyers looking to take advantage of favorable mortgage rates are grappling with record-low inventory levels, prompting many to turn to the pre-construction market — and US builders are taking note.

According to the latest new residential construction report from the US Census Bureau, privately-owned housing starts spiked 12.8 percent year-over-year in November at a seasonally adjusted annual rate of 1,547,000 units. This marks a 1.2 percent increase over October’s revised estimate. 

Single-family housing starts were on a tear in November, totaling 1,186,000 annualized units. “This was the fastest pace of single-family starts since 2007 and represents the seventh consecutive monthly increase,” wrote Doug Duncan, Chief Economist at Fannie Mae, in a statement. Today’s buyers are willing to wait several months for their new homes to be constructed in exchange for additional living space and access to the outdoors.

Multifamily starts climbed 4 percent to 361,000 units in November, which Duncan notes is “slightly below the average starts pace of 2019.” Demand for multifamily housing has waned during the COVID-19 pandemic amid a migration shift from urban centers to the suburbs, where ground-related housing is more prevalent.

Overall, housing starts are still trending upward, however, Duncan was quick to point out that November’s pace was not as staggering as in months past. “While housing construction has helped drive the economic recovery to date, we believe the rapid rebound phase has likely passed,” he added.

Building permits, an indicator of future housing starts, rose 8.5 percent over the same period last year to a seasonally adjusted annual rate of 1,639,000. This marked a 6.2 percent improvement compared to October’s revised figure. There were 1,143,000 single-family authorizations in November, up 1.3 percent month-over-month. Meantime, authorizations of units in buildings with five-plus units equated to 441,000.

Housing completions were down 4.8 percent from the year prior at a seasonally adjusted annual rate of 1,163,000. This was attributed to construction slowdowns caused by spring lockdowns that were imposed across several states.

“Homebuilders have increased their starts pace to catch up to strong homebuyer demand, and more homebuilder resources have been focused on the early stages of construction. However, this process is likely near its end as it takes on average about seven months to construct a new home,” wrote Duncan.

Fannie Mae anticipates that homebuyer demand will be sustained through 2021, although housing starts will likely decelerate as homebuilders shift their attention to delivering new communities.

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