Despite Buyer Demand, Builders Slow Production - Real Estate, Updates, News & Tips

Despite Buyer Demand, Builders Slow Production

Construction on new homes weakened in February as material costs—notably on lumber—continued to challenge growth in new-home construction.

Housing starts—including for single-family and multifamily building—fell 10.3% to a seasonally adjusted annual rate of 1.42 million units in February, the U.S. Department of Housing and Urban Development and Census Bureau reported Wednesday. Broken out, single-family starts fell 8.5% last month to a 1.04 million seasonally adjusted annual rate while the multifamily sector—which includes apartment buildings and condos—fell 15% to a 381,000 pace.

However, buyer demand still remains strong.

“Despite strength in buyer traffic and lack of existing inventory, builders are slowing some production of single-family homes as lumber and other material costs, along with interest rates continue to rise,” says Chuck Fowke, chairman of the National Association of Home Builders. “Shortages of lumber and other building materials, including appliances, are putting future construction expansion at risk.”

Still, regardless of last month’s dip, NAHB Chief Economist Robert Dietz notes that single-family starts for the first two months of the year remain 6.4% higher than the first two months of 2020. Overall, “there has been a 36% gain over the last 12 months of single-family homes permitted but not started as some projects have paused due to cost and availability of materials,” says Dietz.

Single-family home building is still forecasted to increase in 2021, but Dietz says it likely will be at a much slower rate as housing affordability is challenged by higher mortgage rates and rising construction costs.

Regionally, combined single-family and multifamily housing starts only rose in the West last month, up 17.6% compared to the previous month. Meanwhile, housing starts dropped by 39.5% in February compared to January in the Northeast, declined 34.9% in the Midwest, and were 9.7% lower in the South. Dietz notes that February’s winter storm prompted home building to decline in Texas and some neighboring states.

Homebuilding likely will continue to face declines over the coming weeks. Housing permits—a gauge of future activity—declined 10.8% in February to a 1.68 million unit annualized pace. Broken out, single-family permits fell 10% to a 1.14 million unit rate and multifamily permits decreased 12.5%.

Source: National Association of Home Builders

This website includes images sourced from third party websites including Adobe, Getty Images, and as otherwise noted.