Housing Starts Fell Flat in October as Builders Faced Supply-Side Headwinds

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Housing starts were at an annual rate of 1.52 million in October, down 0.7% compared with September but up 0.4% compared with October 2020, according to estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.

Supply chain constraints, materials shortages, and a tight labor market were factors slowing overall production.

Starts of detached single family homes were at an annual rate of 1.039 million, a decrease of 3.9% compared with September.

Starts of multifamily homes (five units or more per building) were at a rate of 470,000, an increase of 6.8% compared with September.

Building permits – a bright spot in the October report – were at a seasonally adjusted annual rate of 1.65 million, an increase of 4.0% compared with September and up 3.4% compared with October 2020.

Permits for single family homes were at a rate of 1.069 million, an increase of 2.7% compared with the previous month.

Permits for multifamily dwellings were at a rate of 528,000, up 6.5% compared with the month prior.

Odeta Kushi, deputy chief economist for First American, notes that builders managed to at least maintain production levels despite supply constraints.

“U.S. housing starts decreased to an annual pace of 1.52 million in October, below expectations of 1.58 million, but modestly higher than one year ago,” Kushi says. “Single-family housing starts declined 3.9 percent month over month, while multi-family increased 6.8 percent.

“Homebuilder sentiment remains on solid footing, despite affordability concerns, material shortages and other supply-side headwinds (labor, lots and land),” Kushi says, in a statement. “Sentiment remains solid because rates remain near historic lows, rising household income and household formation among millennials continue to fuel demand for homes.”

The increase in permit activity is also positive news, Kushi says.

“While groundbreaking on new home homes slowed in October, housing permits – a leading indicator of future starts – increased to an annual pace of 1.65 million, which is a good sign that home building is beginning to accelerate to keep up with the pace of household formation,” she says.

“Single-family permits, while still down from pandemic highs, are nearly 6 percent higher than pre-pandemic,” she adds. “Yet the number of single-family homes permitted, but not started increased this month and is 43 percent higher compared with one year ago, at tell-tale sign of ongoing supply chain issues.”

Kushi adds that the tight labor market has been another obstacle builders face.

Chuck Fowk, chairman of the National Association of Home Builders, says “the rising count of homes permitted but that have not yet started construction is a stark reminder to policymakers to fix the supply chain so that builders can access a steady source of lumber and other building materials to keep projects moving forward.”

“Single-family permit data has been roughly flat on a seasonally adjusted basis since June due to higher development and construction costs,” adds Robert Dietz, chief economist for NAHB, in a statement. “Demand remains solid but housing affordability is likely to decline in 2022 with rising interest rates.”

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