New Construction Mixed – Starts Drop 7.0%, Permits & Completions Gain

While demand for new homes remains high, the pace of new construction reflected softening homebuilder confidence in June as builders grappled with the opportunity to shore up profitability now that lumber prices are declining from recent spikes. Builders pulled back on housing starts, wary of overcommitting on final new home prices in the face of volatile costs for land, materials and labor. However, permit applications and completed homes registered gains, a sign that expectations for the next months remain upbeat.

Permits rose 2.6% from June, and were 6.0% higher than a year ago. Meanwhile, starts dropped 7.0% from the prior month, to 1.53 million annualized units, but were up 2.5% from a year ago. Completed homes, ready for sale, rose 5.6% from June, and were 3.8% above July 2020. Single-family home completions advanced 3.6% from the prior month, on solid activity in the South and West.

In the wake of a year and a half of dramatic swings—from a steep drop during the 2020 quarantines to the frenzied pace of 2021’s first half—real estate markets are clearly moving toward normalization. Americans continue to seek the benefits of homeownership, encouraged by low interest rates and the desire for higher quality of life. And for many homeowners who sat on the sidelines this past year, the current seller’s market is motivating them to list their homes later in the season, with new listings rising at a higher rate in July than in a typical year. The number of existing homes coming up for sale has been rising for almost two months, including smaller homes, offering more affordable options to fatigued first-time buyers.

The influx of inventory offerings has brought home price growth into single-digit territory. However, housing markets remain undersupplied, especially when it comes to affordable new homes. In the wake of a decade of underbuilding, we are still short several million homes for sale. With millennials broadly embracing homeownership as many move further into the third decade of life, the outlook for new home demand remains bright, which could give builders the confidence to pick up the pace.

George Ratiu George Ratiu

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