Housing Starts Fall Short Again as the ‘Housing Supply Crisis’ Looms Large

By Shaina Mishkin

A short supply of materials has cut into builder confidence, the National Association of Home Builders reported Tuesday. / Joe Raedle/Getty Images)

A gauge of new-home construction missed consensus expectations for the second month in a row as a housing trade group characterized the shortage of homes for sale as a “housing supply crisis.”

The seasonally-adjusted annual rate of housing starts rose to 1.57 million in May, up from a revised rate of 1.52 million in April, the Census Bureau said Wednesday. 

That’s 3.6% higher than last month and 50.3% above the seasonally-adjusted annual rate at this time last year. 

Those polled by FactSet had expected a rate of 1.65 million as of Tuesday. 

The rate of new permits, an indicator of future construction, was 1.68 million—3% lower than April’s revised rate and 34.9% higher than the same time last year. The rate of permits issued was expected to remain about flat at 1.73 million, according to FactSet. 

A pickup in new-home construction in line with expectations would have been welcome news for buyers in the supply-constrained residential real estate market. An imbalance between supply and demand is one factor that has likely contributed to swiftly rising home prices and recent month-over-month declines in new- and existing-home sales.

Jefferies economists Aneta Markowska and Thomas Simons wrote about the imbalance in a note following the data release. 

“With housing inventories still hovering near all-time lows and prices soaring, homebuilders are certainly incentivized to build more units,” they wrote. 

“However, the lack of skilled labor and an acute shortage of construction materials, from lumber to household equipment to paint – are making it nearly impossible to increase the run-rate of housing production.”

Lawrence Yun, chief economist for the National Association of Realtors, wrote that the nation’s housing shortage goes beyond month-over-month data. 

“America is facing a massive housing shortage due to multiple years of underproduction in relation to population growth,” Yun said. 

“Expect both rents and home prices to outpace overall consumer price inflation in the upcoming years.”

The trade group on Wednesday released a report, authored by the Rosen Consulting Group, calling the short supply of homes for sale dire and urging action at a governmental level. 

According to the trade group, an additional 5.5 to 6.8 million homes are needed to meet demand.

New-home construction data has been volatile in recent months. 

The seasonally-adjusted annual rate of housing starts in March hit its fastest pace in more than a decade before falling unexpectedly in April as supply availability squeezed builders. 

Of the builders polled last month by the National Association of Home Builders, 95% reported a shortage of appliances. 

The short supply of materials has cut into builder confidence, the National Association of Home Builders reported Tuesday. 

The trade group’s monthly housing market index, which measures home-builder sentiment, declined two points from its prior reading of 83 to what the trade group says is the lowest level since last August. 

“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” Chuck Fowke, National Association of Home Builders chairman, said. 

“These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building.”

And even as lumber prices have fallen recently, they are still significantly higher than the normal rate at this time of year, the Wall Street Journal reported.

The trade group noted that all three components of the index slipped in June: builders’ perceptions of current sales, their sales expectations for the next six months, and their gauge of buyer traffic. 

“While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” Robert Dietz, chief economist at the National Association of Home Builders, wrote. 

“Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans."

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