The home building industry is making up for lost time, constructing new single-family homes at a pace not seen since 2007.
According to the latest new residential construction report from the US Census Bureau, the number of single-family homes under construction edged up 1.2 percent in May to 652,000 annualized units, marking a 14-year high and the 12th consecutive monthly increase.
Single-family housing starts, representing the number of homes that began construction during the month of May, rose 4.2 percent above April’s revised figure to 1.10 million annualized units. While this might seem like a marginal increase, Chief Economist at Fannie Mae Doug Duncan noted that last month’s total was “23.5 percent higher than the 2019 average.”
Across all housing types, including multi-family properties, starts ticked up 3.6 percent month-over-month to 1.57 million annualized units. This was 50.3 percent higher than the May 2020 rate, however, a significant number of construction projects were delayed by the pandemic during that period, skewing the annual comparison.
Building permits for single-family homes fell 1.6 percent on a monthly basis to 1.13 million units. This occurrence wasn’t unique to detached properties, the total number of building permits issued declined 3.0 percent from April to 1.68 million annualized units. The high price of lumber, which peaked on May 10th at $1,711 per thousand board feet, likely contributed to the slowdown.
Many homebuilders have delayed construction until lumber prices drop to more sustainable levels, which has led to a growing backlog of new homes that have been sold but not yet built. In May, for example, there were 142,000 authorized single-family homes in the pre-construction phase, soaring 3.6 percent month-over-month and 52.7 percent compared to one year ago.
Duncan says this backlog of homes and the falling price of lumber, which recently dipped below $1,000 per thousand board feet for the first time since March, could hasten the pace of residential construction. “We expect some upward movement in single-family starts in the coming months as delayed and put-off projects are initiated,” he added.
The number of single-family homes that completed construction amounted to 978,000 annualized units, a 2.6 percent drop from the revised April rate. Across all housing types, 1.37 million annualized units went from ‘under construction’ to ‘move-in ready.’
Housing demand, driven primarily by Millennials who have reached their prime household formation years, is unlikely to subside for several years. As of the fourth quarter of 2020, the US faces a housing shortage of an estimated 3.8 million units, according to Freddie Mac. A report published this week by Harvard University’s Joint Center for Housing Studies attributed the under-supplied market to “the low level of homebuilding since the mid-2000s,” concluding that “to meet today’s strong demand, more existing single-family homes must come on the market.”