Building of recent properties improves, however residence builders nonetheless battle with lack of labor and supplies

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The payment: Housing activity continued to improve in June, but home builders face tough choices in a difficult market.

U.S. home builders began building homes in June at a seasonally adjusted annual rate of 1.64 million, up 6.3% from the previous month’s revised downward figure, the US Census Bureau reported this week. Compared to June 2020, housing starts increased by 29%, although the year-on-year comparison is somewhat skewed by the effects of COVID-19.

In June, however, the pace of approval for new residential units slowed down again. New housing permits were issued at a seasonally adjusted annual rate of nearly 1.6 million, 5% less than in May but 23% more than a year ago.

Construction starts and permits numbers are expressed as annual rates, which means that this is the total number of homes that would be built or approved if builders kept this pace for an entire year. Economists surveyed by MarketWatch had expected a construction start of 1.68 million and building permits of 1.59 million.

What happened: Construction companies broke ground in June for both single-family houses and multi-family houses compared to the previous month. However, construction starts varied regionally.

Both the Northeast and the Midwest saw a decline in housing starts, while the West and South saw increases. In the west in particular, housing starts rose by 13% per month to their highest level since February.

The big picture: The latest sentiment data from building owners signaled growing uncertainty about the strength of the market for new buildings. The construction industry continues to suffer from severe manpower and material shortages, driving construction costs soaring – although wood costs have stabilized at or near record highs after months of dormancy.

The factors that drove home construction have not gone away. The country still lacks sufficient supply of housing to meet demand, which is pushing people into the market for new housing. However, rising prices and the general stress of home shopping could currently weigh on some buyers who may ultimately decide to forego their plans to buy a home for the time being. The growing disinterest of buyers was reflected in the mortgage application data over the past few weeks.

What happens next in the new home market depends on which path home builders take. “Builders are debating whether to increase their inventory and pass lower prices on to consumers, or take the current opportunity to offset last year’s setbacks by increasing profit margins,” said George Ratiu, senior economist at Realtor.com. If material costs continue to stabilize, Ratiu argued, builders could be encouraged to pass those savings on to buyers and ramp up operations.

What you say: “The activities are well supported by strong demand and very limited resale offers in many markets. Soaring input costs and the availability of materials remain an issue, but wood prices have finally cracked, ”wrote Robert Kavcic, senior economist at BMO Capital Markets, in a research note.

“Housing construction has rallied strongly during the pandemic, boosted by changing consumer demand, especially for single-family homes. But inventory shortages and high input costs drive prices up, a limitation for both builders and buyers, ”Rubeela Farooqi, US chief economist at High Frequency Economics, wrote in a research note.

“Apparently home builders were initially reluctant to cut production when demand began to decline, probably because inventories were very low at the time and they feared losing market share. Now, however, no one is going to want to hold excess inventory at the end of summer, ”Ian Shepherson, chief economist at Pantheon Macroeconomics, wrote in a research note.