New-Home Construction Surges Higher Amid Higher Lumber Prices—in All but One Region of the U.S.
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The numbers: Housing starts surge higher
U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.68 million in November, representing a nearly 12% increase from the previous month, the U.S. Census Bureau reported Wednesday. Compared with November 2020, housing starts were up roughly 8%.
The pace of permitting for new housing units also increased in November. Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.71 million, up roughly 4% from October and 1% from a year ago.
Economists polled by MarketWatch expected housing starts to occur at a median pace of 1.66 million and building permits to come in at a median pace of 1.56 million.
What happened
Housing starts rose for both single-family and multifamily projects. The Midwest was the only region where new construction activity decreased overall, with a 7.3% downturn. Meanwhile, in the Northeast, there was a nearly 28% increase in housing starts on a monthly basis.
Compared with last year, housing starts were down in the Northeast and West, but up in the Midwest and South.
The increase in permitting was driven by an 6% jump in the number of multifamily buildings authorized, as the number of single-family homes that were permitted only increased 2.7% on a monthly basis. There was a decrease in the number of permits issued for duplexes, triplexes and quadplexes.
There was also a 1.5% increase in the number of approved projects where construction had yet to begin, driven by a backlog of multifamily projects. However, there was a nearly 20% monthly increase in the number of multifamily projects where construction was completed. Comparatively, single-family completions were essentially flat as compared with October.
The big picture
As evidenced by the strong optimism among home builders, market conditions are highly supportive of a fast pace of construction. Realtor.com estimates that there is a nationwide shortage of roughly 5.2 million single-family homes based on current demand. “Within this landscape, new construction is the missing link,” said George Ratiu, manager of economic research at Realtor.com.
Millennials are driving that strong demand as they enter their prime home-buying years, but unlike with the Baby Boomer generation they are encountering an extremely tight housing market. Years of underbuilding following the turmoil of the Great Recession has meant that new-home construction has not kept pace with growth in the number of households across the country. So long as that remains the case, home builders will have ample runway to continue building properties.
But construction firms face their own set of challenges, in terms of labor and material shortages. For instance, Realtor.com notes that lumber prices have surged to $1,100 per thousand board feet, up from a low this summer of $400. Those shortages don’t just slow down the pace of home construction, but make it more expensive.
“With higher construction costs, the sale price of a new home is up about 18% since last year,” Ratiu noted.
What they’re saying
“Residential construction has stepped back from the torrid pace seen earlier this year as persistent supply issues and elevated material costs have capped overall activity. The number of homes still under construction is now at the highest since 1974, as materials take longer to arrive on site,” Priscilla Thiagamoorthy, an economist with BMO Capital Markets, wrote in a research note.
“An eventual easing of supply pressures and low inventories should be supportive of building activity even as mortgage rates rise next year,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, in a research note.
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