US housing construction stumbles as supply constraints increase
Tuesday’s Commerce Department report also showed that the gap between homes completed and those still under construction was the largest on record last month. Strong demand as global economies emerge from the COVID-19 pandemic is facing labor shortages, straining supply chains and stoking inflation. Almost all industries in the United States are experiencing shortages.
âDemand dynamics still look positive,â said Rubeela Farooqi, chief US economist at High Frequency Economics in White Plains, New York. “But supply is struggling to catch up given higher input costs and shortages that remain headwinds for builders.”
Housing starts fell 1.6% to a seasonally adjusted annual rate of 1.555 million units last month, the lowest level since April. Data for August has been revised down to a rate of 1.580 million units from 1.615 million units previously reported.
Economists polled by Reuters had predicted that housing starts would rise at a rate of 1.620 million units. Lumber prices are on the rise again after falling from their record highs in May. Building materials, such as windows and electrical circuit breakers, are scarce.
The prices of copper, another essential material in housing construction, have climbed more than 16% since the end of September, supported by low supplies for decades. The pandemic has disrupted the dynamics of the labor market, resulting in shortages of the workers needed to produce and get raw materials and finished products to market.
Housing starts fell from the 1.725 million unit pace level recorded in March, which was more of a 14-and-a-half-year high.
Single-family home starts, which account for the largest share of the housing market, were unchanged at a rate of 1.080 million units last month. Single-family home construction increased in the West and Midwest, but declined in the Northeast and the densely populated South, also likely depressed by Hurricane Ida, which caused unprecedented flooding. Starts of buildings with five or more units fell 5.1% to 467,000 units last month.
A survey by the National Association of Home Builders on Monday showed that builders’ confidence of single-family homes rose again in October, but noted that “builders continue to face ongoing supply chain disruptions and shortages of labor that delay completion times “.
Wall Street stocks were trading higher as upbeat results from Johnson & Johnson and Travelers boosted risk appetite. The dollar fell against a basket of currencies. US Treasury prices were mixed.
DELAY IN COMPLETION
Last month’s drop in housing construction followed news on Monday that production at US factories fell the most in seven months in September. Residential investment likely remained weak in the third quarter after contracting in the April to June quarter.
Estimates of gross domestic product growth for the third quarter are mostly below an annualized rate of 3%. The economy grew at a pace of 6.7% in the second quarter.
The housing market was boosted at the start of the coronavirus pandemic by an exodus from cities to suburbs and other low-density locations as Americans sought more spacious housing for home offices and online education , leading to three consecutive quarters of double-digit growth in residential spending. That tailwind fades as workers return to offices and schools reopened for in-person learning, thanks to COVID-19 vaccinations. High inflation also pushes up mortgage rates.
The 30-year fixed mortgage rate rose to an average of 3.05% last week, from 2.99% the week before, according to data from mortgage giant Freddie Mac. While still low by historical standards, rising borrowing costs may make homeownership less affordable for some first-time homebuyers. House prices registered double-digit growth on an annual basis in July.
A separate Mortgage Bankers Association report released Tuesday showed mortgage applications for new home purchases fell 16.2% in September from a year earlier. Requests were down 4% month over month. The average loan amount reached a record high of $ 408,522, underscoring higher construction costs.
With rising construction costs, permits for future home construction plunged 7.7% to a rate of 1.589 million units last month, the lowest level since September 2020. Home permits Single-family homes fell 0.9% to a rate of 1.041 million units.
Permits for buildings with five or more units fell 21.0% to a rate of 498,000 units.
Deliveries of homes fell 4.6% to a rate of 1.240 million units, the lowest level since August 2020. Deliveries of single-family homes remained unchanged at a rate of 953,000 units.
The stock of housing under construction rose 1.3% to 1,426 million units last month, the highest since February 1974. This led to a record gap between homes completed and homes under construction.
Also highlighting supply constraints, the number of homes cleared for construction but not yet started hit a record high last month.
“The backlog of housing starts – which reflects many constraints on the supply side, including high input costs and difficulty attracting skilled workers – should support housing construction in the coming months,” said said Nancy Vanden Houten, chief US economist at Oxford Economics in New York.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci)
By Lucia Mutikani