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What’s Holding Back Housing Starts?

housing startsHousing starts fell 12.3 percent to 1.17 million in June against 1.37 million starts registered in May, according to data from the latest new residential construction statistics released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on Tuesday.

The data, which also looks at building permits and housing completions indicated that single-family housing starts in June also fell 9.1 percent to 858,000 units from 944,000 recorded in May. Building permits also disappointed, slipping 2.2 percent month-over-month to 1.27 million from 1.3 million in May. However, single-family building authorizations saw a slight uptick of 0.8 percent to 850,000 from 843,000 in the prior month.

Housing completions, according to the report remained flat month over month at 1.26 million units. However, they were 2.2 percent above 1.23 million recorded during the same period last year.

June’s housing start data has disappointed analysts who were expecting a more positive outlook post the uptick in new residential construction seen in May.

According to Danielle Hale, Chief Economist at Realtor.com, the U.S. housing market is in desperate need of new construction. “If starts grow as they’ve grown in the last quarter, it’s going to take until March 2022 to get back to average starts at that level,” she said.

“Starts are stagnating despite inventory challenges in the existing homes market,” said Tendayi Kapfidze, Chief Economist, LendingTree. “Starts fell in all regions, and single-family starts are particularly weak in the high-cost Northeast, down 40 percent from a year ago.

“The limited supply of homes for sale is the biggest issue facing the housing market today,” said Mark Fleming, Chief Economist, First American. From a short-term perspective, this month’s overall pace of housing starts, 1.17 million units, sends a mixed message for the housing market. While housing starts decreased on an annual basis, completions are up- indicating some immediate relief in alleviating the supply shortage.”

However, some factors continue to drive single-family housing starts despite the disappointing monthly numbers, according to Tian Liu, Chief Economist, Genworth Mortgage Insurance. “Despite challenges such as higher material costs and labor shortages, the shift in demand towards homeownership and the lack of available inventory of existing homes for sale continues to drive single-family housing starts,” he said.

Some key factors that continue to impact the construction of new homes are rising tariffs, increasing demand, and labor. “Builder confidence is high, and construction jobs are increasing, but there is a drag on actual building activity,” Kapfidze said. “The tax plan will increase builder margins by 10-15 percent. However, the tariffs, which are essentially a tax, are negating some of the benefits and could be starting to have a suppressive effect on activity.”

“As builders start work on additional housing, we will inch closer to balancing inventory with demand,” Fleming said. “But, with millennials entering household formation age and baby boomers living longer and more independently than previous generations, builders will remain under pressure to keep up with the growing demand.”

“Rising costs for land, labor, and materials have been holding back entry-level and affordable home building,” Hale said. “In addition to rising interest rates and shortage-driven price gains, rising lumber costs have added an estimated $9,000 to the price of a new single-family home.”

Learn more about new residential construction in May:

Are Rising Housing Starts Really Balancing Demand?

About Author: Radhika Ojha

Radhika Ojha, Online Editor at the Five Star Institute, is a graduate of the University of Pune, India, where she received her B.A. in Commerce with a concentration in Accounting and Marketing and an M.A. in Mass Communication. Upon completion of her master’s degree, Ojha worked at a national English daily publication in India (The Indian Express) where she was a staff writer in the cultural and arts features section. Ojha also worked as Principal Correspondent at HT Media Ltd and at Honeywell as an executive in corporate communications. She and her husband currently reside in Dallas, Texas. You can contact her at Radhika.Ojha@theMReport.com.

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