What a difference a month can make.
The U.S. Census Bureau reported Friday that housing starts, permits, and completions rose June from May, with starts growing 17.3% from the prior month.
An estimated 1.18 million housing starts were initiated in June, which is a sizable increase from the revised May estimate of 1.01 million. This, however, is 9% below the June 2019 rate of 1.23 million.
“Housing construction is coming back in a strong way. Homebuilders are confident that they'll be able to sell as many homes as they can make,” said Holden Lewis, Home and Mortgage Expert, NerdWallet.
Building permits rose month-over-month by 2.1%, with an estimated 1.21 permits issued in June. This is also representing an annual drop, falling 2.5% from last year.
The Bureau reported that housing completions were 4.3% above the May estimate of 1.17 million, growing to 1.22 million. Housing completions surpassed the June 2019 rate by 5.1%.
George Ratiu, Senior Economist, realtor.com, said low mortgage rates are tempting buyers to return to the market, many of which focusing on homes with more space, better remote options, and less dense neighborhoods.
“In response, construction activity had a strong rebound in June after the initial wave of business re-openings across the Sunbelt. The NAHB/Wells Fargo homebuilder sentiment index showed rising optimism in June, and July’s numbers show home builder sentiment continued upward from June, hovering around pre-pandemic levels.,” Ratiu said.
He added that home builders are in a “solid position to respond” to new buyer preferences, especially with the shrinking inventory of existing homes.
One deterrent could be the rising cost of lumber, labor, and construction materials, which may push home prices higher and “out of reach” for first-time buyers.
Odeta Kushi, Deputy Chief Economist, First American Financial, said homebuilder optimism has recovered amidst robust demand.
“Pent-up demand from a deferred spring home-buying season and historically low mortgages rates have resulted in a strong V-shaped recovery for the housing market, and builders are taking note,” she said.
Although June’s numbers lag behind priors years’, the monthly increase indicates builders are responding to the need for more homes.
“More inventory will reduce the pressure from the lack of supply in today’s market,” Kushi said.
Doug Duncan, Chief Economist, Fannie Mae, said new single-family sales have outpaced new single-family starts in recent months and the ratio between the two remained at the highest level since May 2009.
“We expect to see continued strength in single-family starts and a leveling off of single-family sales in the third quarter, bringing that ratio more in line with historical norms. Supporting that forecast, single-family permits jumped by around 12% or the second straight month, suggesting new building has momentum heading into the third quarter,” Duncan said.