Record-high lumber prices prompted homebuilders to delay construction in April, causing single-family housing starts to decline by 13.4 percent month-over-month to 1.05 million annualized units, according to the US Census Bureau.
While single-family starts haven’t fallen this sharply since the shutdown of the economy in April 2020, Fannie Mae Chief Economist Doug Duncan says that compared to 2019 averages, the pace of new home construction actually increased by 22 percent.
Across all housing types, construction starts fell 9.5 percent in April to 1.57 million annualized units. Multi-family starts ticked up 0.8 percent to 482,000 annualized units, which is “also about 20 percent higher than the 2019 average,” added Duncan.
Housing experts have identified rising lumber prices as the primary source of the slowdown. Homebuyers, eager to lock in low mortgage rates, are purchasing pre-construction homes at breakneck speed. But developers are holding off on construction until lumber prices fall to avoid raising their own prices to unsustainable levels.
Last month, the price of lumber surged to $1,200 per 1,000 board feet, up considerably from $350 per 1,000 board feet one year earlier. According to the National Association of Home Builders (NAHB), building costs for the average single-family home have gone up by $36,000 due to the ongoing lumber shortage.
The price of lumber has since hit an all-time high of $1,733.50 per 1,000 board feet, recorded on May 10th, but futures prices for July indicate a 31 percent price drop to $1,264 per 1,000 board feet. However, this lower-priced lumber isn’t expected to be delivered to construction sites until August, potentially causing further delays for the industry.
Single-family building permits, an indicator of future housing starts, dropped 3.8 percent from April to May to a rate of 1.15 million annualized units. Duncan suggests that this perceived weakness could just be “noise” as single-family permits have outpaced housing starts in three out of the last four months, April included.
He predicts a “partial rebound” for single-family permits in next month’s report due to sustained buyer demand and low inventory in the resale market. Total building permits rose 0.3 percent month-over-month to 1.76 million annualized units, while authorizations for multi-family projects improved by 9.6 percent to a rate of 559,000 units.
“This report may be the strongest evidence yet that supply constraints, namely lumber and material prices, labor scarcity, and a lack of buildable lots, are weighing meaningfully on homebuilders’ ability to keep up with housing demand,” said Duncan.
However, with lumber prices expected to continue falling, there is hope in sight for both builders and new home purchasers. April’s NAHB/Wells Fargo Housing Market Index pegged builder confidence at 83, up from an average of 70 in 2020. All of this points to a promising future for the new residential construction market.