In an effort to satisfy demand from hungry buyers, who currently face record-low inventory levels, US homebuilders ramped up construction in December, reaching the highest pace in more than 14 years.
According to the latest residential construction report from the Census Bureau, housing starts climbed 5.8 percent to 1.67 million annualized units last month. Compared to the same period in 2019, home building activity is up 5.2 percent, propelled by single-family starts, which increased by 12 percent to 1.34 million annualized units.
Despite the COVID-19 pandemic, single-family housing starts hit a 13-year high in 2020. As mortgage rates sank to historic lows, more buyers began to enter the market, heightening competition for a limited number of properties. New construction homes are particularly attractive because they eliminate the risk of a bidding war and are presented in turnkey condition.
Multifamily starts, representing condominiums, townhouses, duplexes, etc., declined by 13.6 percent in December and 2 percent annually. “The ongoing divergence between single-family and multifamily is consistent with the continued interest of many homebuyers in moving to suburban and smaller metro areas,” wrote Doug Duncan, Chief Economist at Fannie Mae, in a statement.
“We expect multifamily construction to be comparatively weak over the coming year as this COVID-related dynamic continues to play out.”
Building permits, an indicator of future housing starts, surged 4.5 percent in December to an annualized rate of 1.71 million units. Compared to year-ago levels, permits are up 17.3 percent, driven once again by single-family authorizations. These permits will likely materialize as housing starts in one to two months’ time.
While this should spell good news for the new construction market, homebuilder confidence was knocked down a peg in January due to rising lumber and land prices. The NAHB/Wells Fargo Housing Market Index, published on Wednesday, fell 3 points to a reading of 83. The index hit an all-time high in November when it reached 90, although any number over 50 is generally considered to be positive.
“While housing continues to help lead the economy forward, limited inventory is constraining more robust growth,” said NAHB Chief Economist Robert Dietz in a press release. “A shortage of buildable lots is making it difficult to meet strong demand and rising material prices are far outpacing increases in home prices, which in turn is harming housing affordability.”