Housing starts step back in July

Home builder momentum stepped back in July, according to the Monthly New Residential Construction report released Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development.

Housing starts in July fell by 7% to a seasonally adjusted annual rate of 1.534 million from a revised June estimate of 1.65 million. Last month’s report placed June housing starts at 1.643 million.

The latest report is 2.5% above the July 2020 rate of 1.497 million, however.

Single-family starts declined 4.5% in July to a rate of 1.111 million compared to the revised June rate of 1.163 million.

“The latest starts numbers reflect declining builder sentiment as they continue to grapple with high building material prices, production bottlenecks and labor shortages,” said NAHB Chairman Chuck Fowke. “Policymakers need to prioritize the U.S. supply chain for items like building materials to ensure builders can add additional inventory the housing market desperately needs.”

The multifamily sector, which includes apartment buildings and condos, decreased 13.1% to a 423,000 pace. Starts for multi-family buildings of five units or more dropped 13.6% to 412,000 from the revised June rate of 477,000.

"With home prices having risen by record amounts over the past year, homebuying will become an increasing challenge, and a good number of households may simply decide to rent," said Lawrence Yun, chief economist of the National Association of Realtors.

Total housing permits authorized in July were at a seasonally adjusted annual rate of 1,635 million, rising 2.6% above the revised June rate of 1.594 million and 6% ahead of the July 2020 rate of 1.542 million.

Single‐family permits slipped 1.7% to 1.048 million from the revised June figure of 1.066 million.

“The decline in single-family permits indicates that builders are slowing construction activity as costs rise,” said Danushka Nanayakkara-Skillington, NAHB assistant vice president for forecasting and analysis. “Starts began the year on a strong footing but in recent months some projects have been forced to pause due to both the availability and costs of materials.”

Multifamily permits increased 11.2% to a 587,000 pace with multi-family permits for buildings with five units rising 11.1% to a rate of 532,000.

“Rents will be soaring in the coming months, especially for apartment units, as homebuilding retreated in July," Yun notes. "There was a housing shortage before the pandemic, and the shortage has been exacerbated during the pandemic. Therefore, homebuilding needed to be greatly ramped up as the jobs recovery took hold."

Factors holding back construction include supply-chain disruptions in getting the right material on a timely basis, lags in getting approvals for land lot development, and labor shortages.

"In addition, the jobs recovery is enticing people out of their parents’ homes to seek their own housing," Yun points out. "Consequently, rental demand is rising strongly. With an inadequate supply of available homes, rents will be strengthening and adding further pressure to overall consumer price inflation.”