The housing starts report out Tuesday indicates that new home construction starts fell sharply in April, showing that building material and labor woes are beginning to drag that market.
Real estate investors factoring in a growing supply of new homes to ease supply woes may want to reconsider that part of their thinking. And price pressure won't likely be easing, either, at least not from this segment.
Single-family housing starts fell 13.4% month over month in April to a seasonally adjusted annual rate of 1.09 million units, the U.S. Census Bureau and U.S. Department of Housing and Urban Development reported this week.
Factor in multifamily starts -- which includes condos and apartment buildings -- and the number increases to 1.57 million starts, down 9.5% from April, according to the agencies’ monthly report. Multifamily starts actually increased 0.8% month over month to an annualized rate of 482,000 units.
The numbers may reflect a slower pace of building, but they don’t reflect cooling demand. Overall housing starts in April were 67.3% higher than they were in April 2020, when the pandemic was still tightening its grip, and building permits this April rose to a seasonally adjusted rate of 1.76 million, up 0.3% from March and 60.9% from April 2020.
Housing completions, meanwhile, came in at a seasonally adjusted annual rate of 1.45 million, down 4.4% from March but still 21.7% ahead of April 2020.
A struggle to meet demand, while some projects pause
That combination of housing starts lagging housing completions and even more so, housing permits, seems to reflect an industry that’s struggling to meet demand in the face of soaring material costs and shortage of labor.
“The decline in single-family permits indicates that builders are slowing construction activity as costs rise,” said Robert Dietz, chief economist for the National Association of Home Builders.
“While housing starts were strong at the beginning of the year, due to homebuilders constructing homes that were sold pre-construction, higher costs and limited availability of building materials have now paused some projects,” Dietz said in a blog.
The Millionacres bottom line
Affordability issues exacerbated by prices driven upward by demand and costs are affecting renters and homeowners alike. That’s good news for sellers but bad for buyers, whether looking for a place to live or a property to buy for a quick resale or a rental.
The only cure to that ill would seem to be growing supply, but this month’s housing starts report shows that new construction might not be providing the antidote anytime soon.
(And, as Millionacres’ Liz Brumer lays out here, there are multiple risks emerging in the overall housing market that seems so buoyant right now.)