US homebuilders ramped up single-family home construction in June, but a slowdown in activity could be on the horizon.
Single-family housing starts climbed 6.3 percent month-over-month to 1.64 million annualized units, according to the latest new residential construction report from the Census Bureau. While this performance was better than expected, it could be the start of a short-term decline in homebuilding activity, say housing experts.
This is because building permits for single-family homes, an indicator of future housing starts, fell by 6.3 percent between May and June to 1.06 million annualized units — the lowest level in eight months.
“The divergence between starts and permits is consistent with builders struggling to keep up with orders, as is the tick up in homes authorized but not yet started,” wrote Mark Palim, Deputy Chief Economist at Fannie Mae, in a statement.
Instead of planning new projects, homebuilders are currently addressing their growing backlogs of pre-sold homes and waiting for labor and material shortages to ease up. Although the backlog of authorized, but not yet started homes shrank across all housing types, it grew ever-larger in the single-family segment to a level not seen since October 2006.
That being said, demand for new construction homes remains high due to the country’s supply shortage and still-low mortgage rates. Fierce bidding wars and a lack of inventory in the resale market have also prompted some buyers to consider new construction homes.
“We expect housing starts to mostly move sideways over the balance of 2021,” wrote Nancy Vanden Houten, Lead Economist at Oxford Economics, in new commentary. “Strong demand, a need for inventory, and generally upbeat homebuilder optimism will keep a floor under starts.”
When broken down by region, single-family starts increased the most in the Northeast (34.4 percent), followed by the Midwest (19.9 percent) and the South (13.7 percent). The number of homes that kicked off construction in the West was unchanged from the month before.
Since peaking in early May, futures prices for lumber have been falling steadily, but they remain over 100 percent higher than one year ago. No longer confined to their homes, Americans are now more interested in spending money on vacations than replacing their wood decks.
Dwindling demand from DIYers will help to relieve some of the supply-side constraints, encouraging homebuilders to begin construction. Ideally, these lower lumber prices will be passed onto new home purchasers, helping to improve affordability in the months ahead.