Housing Starts Down in July, Supply Chain Challenges Remain in U.S.

Housing Starts Down in July, Supply Chain Challenges Remain in U.S.

Residential News » Scottsdale Edition | By David Barley | August 19, 2021 8:37 AM ET

According to a new report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau this week, supply chain and labor challenges helped to push overall housing starts down 7.0 percent to a seasonally adjusted annual rate of 1.53 million units.

The July 2021 reading of 1.53 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 4.5 percent to a 1.11 million seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, decreased 13.1 percent to a 423,000 pace.

"The latest start numbers reflect declining builder sentiment as they continue to grapple with high building material prices, production bottlenecks and labor shortages," said Chuck Fowke, chairman of the National Association of Home Builders. "Policymakers need to prioritize the U.S. supply chain for items like building materials to ensure builders can add additional inventory the housing market desperately needs."

"The decline in single-family permits indicates that builders are slowing construction activity as costs rise," said NAHB Assistant Vice President of Forecasting & Analysis Danushka Nanayakkara-Skillington. "Starts began the year on a strong footing but in recent months some projects have been forced to pause due to both the availability and costs of materials."

On a regional and year-to-date basis (January through July of 2021 compared to that same time frame a year ago), combined single-family and multifamily starts are 27.7 percent higher in the Northeast, 20.8 percent higher in the Midwest, 18.5 percent higher in the South and 27.7 percent higher in the West.

Overall permits increased 2.6 percent to a 1.64 million unit annualized rate in July. Single-family permits decreased 1.7 percent to a 1.05 million-unit rate. Multifamily permits increased 11.2 percent to a 587,000 pace.

Looking at regional permit data on a year-to-date basis, permits are 24.9 percent higher in the Northeast, 23.0 percent higher in the Midwest, 25.9 percent higher in the South and 28.2 percent higher in the West.

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Lawrence Yun

The National Association of Realtors Chief Economist Lawrence Yun also commented, "Rents will be soaring in the coming months, especially for apartment units, as homebuilding retreated in July. There was a housing shortage before the pandemic, and the shortage has been exacerbated during the pandemic. Therefore, homebuilding needed to be greatly ramped up as the jobs recovery took hold. Yet in July, housing starts fell by 7% -- single-family construction is down by 4% and multifamily construction is down by 13%. Other factors holding back construction: supply-chain disruptions in getting the right material on a timely basis, lags in getting approvals for land lot development, and labor shortages."

Yun continues, "With home prices having risen by record amounts over the past year, homebuying will become an increasing challenge, and a good number of households may simply decide to rent. In addition, the jobs recovery is enticing people out of their parents' homes to seek their own housing. Consequently, rental demand is rising strongly. With an inadequate supply of available homes, rents will be strengthening and adding further pressure to overall consumer price inflation."

The Mortgage Bankers Association Chief Economist Mike Fratantoni also made the following comments on this new housing data for July, "Both single-family and multifamily starts declined in July relative to June, but single-family starts remain almost 12% higher than last year. There are now almost 690,000 single-family homes under construction - the largest number since 2007. This is clearly a positive sign given the remarkably low levels of inventory on the market.

"Permits for single-family homes dropped slightly over the month but were higher than a year ago and remain higher than the level of starts. The pace of construction should continue to increase, particularly if supply-chain constraints begin to loosen."

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