New home construction slows as builders grapple with supply chain issues

New home construction declined in October, but licensing activity continued at a steady pace, underscoring the challenges builders face when starting and completing projects.

U.S. homebuilders began building homes at a seasonally adjusted annual rate of 1.52 million in October, down 0.7% from the previous month, the US Census Bureau reported on Wednesday. Compared with October 2020, housing starts increased 0.4%.

The pace of issuing permits for new housing units increased in October, however. Permits for new homes occurred at a seasonally adjusted annual rate of 1.65 million, up 4% from September and 3.4% from a year ago. Economists polled by MarketWatch expected housing starts to occur at a median rate of 1.63 million and building permits at a median rate of 1.58 million.

What happened

The overall pace of housing projects being completed remained unchanged between September and October, but the rate at which builders completed work on single-family homes declined by about 1.7% during that period.

Every region nationwide has seen an increase in licensing activity, led by an 8.3% increase in the Midwest. Permits have also increased for all types of buildings. Permits for single-family homes increased 2.7%, while permits for buildings with two to four units rose 8.2% between September and October. Multi-family permits increased 6.5% on a monthly basis.

The drop in housing starts was caused by a 3.9% drop in new construction of single-family homes. Multi-family housing starts actually rose 6.8% between September and October. Regionally, all regions of the country recorded declines in housing starts, with the exception of the Midwest.

The big picture

The mixed message from the Census Bureau’s new homebuilding report highlights the supply chain challenges home builders face.

Building materials are still harder to find than before the COVID-19 pandemic, and labor shortages continue to plague the construction industry. These two factors have hampered the ability of home builders to accelerate the pace of construction.

However, the demand for new housing remains high. “New home sales figures in September were strong, reflecting market optimism and indicating that once materials and labor are readily available, we are likely to see a similar increase in stakes. under construction, ”said Kelly Mangold, Director of RCLCO Real Estate Consulting.

What they say

“In September, homes under construction hit a 47-year high. With builders’ resources so limited, the start of new construction is delayed, ”said Benjamin Reitzes, macro-strategist at BMO Capital Markets, in a note, citing research by his colleague, BMO Senior Economist Sal Guatieri.

“With demand still strong and inventories low, the backdrop for construction activity is expected to improve as supply constraints gradually ease,” said Rubeela Farooqi, chief US economist for High Frequency Economics, in a research note.

“With one in four homeowners stating that they aren’t selling this year because they can’t find a next home to buy in their price range, existing homeowners are facing a problem. For many markets, new construction is the solution, ”said Danielle Hale, chief economist at Realtor.com.

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