Inventory Problem Persists as Housing Starts Fell Again in June

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Housing starts continued to disappoint in June, falling to an adjusted annual rate of 1.253 million, a decrease of 0.9% compared with a revised 1.265 million in May but an increase of 6.2% compared with 1.180 million in June 2018, according to estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.

Starts of single‐family homes were at a rate of about 847,000, an increase of 3.5% compared with a revised 818,000 in May.

Starts of multifamily dwellings (five units or more per building) were at a rate of about 396,000, a decrease of 9.4% compared with about 437,000 units in June 2018.

Regionally, combined single-family and multifamily starts increased 31.3% in the Northeast and 27.1% in the Midwest, but fell 9.2% in the South and 4.9% in the West.

Building permits were also down, falling to an annual rate of 1.220 million, a decrease of 6.1% compared with 1.299 million units in May and down 6.6% compared with 1.306 million in June 2018.

Permits for single‐family homes were at a rate of 813,000, an increase of 0.4% compared with 810,000 in May.

Permits for multifamily dwellings were at a rate of 360,000, a decrease of 20.7% compared with about 454,000 in May.

Regionally, permits increased 21.9% in the Northeast but fell 10.4% in the South, 7.9% in the West and 0.6% in the Midwest.

Housing completions were at a rate of 1.161 million, a decrease of 4.8% compared with 1.220 million the previous month and down 3.7% compared with a rate of 1.205 million a year earlier.

Completions of single‐family homes were at a rate of 870,000, a decrease of 1.8% compared with 886,000 in May.

Completions of multifamily units were at a rate of 283,000, a decrease of 14% compared with 329,000 in May.

The persistent problem of lack of new inventory is creating a shortage of homes for sale, which, in turn, is boosting home prices and impacting affordability.

Part of the problem is that it has become more expensive for builders to build new homes.

“Restrictive and costly regulations, rising construction costs and an ongoing labor shortage in the construction industry continue to put pressure on builders,” said Odeta Kushi, deputy chief economist for First American, in a statement. “If these supply headwinds persist, buyers looking for homes may be facing a tighter market in the second half of the year.”

Last week, Federal Reserve Chairman Jerome H. Powell told members of the Senate Banking Committee that home builders are facing several supply-side challenges including a shortage of skilled labor, rising materials costs and a lack of affordable, buildable lots.

“What we hear from home builders is a series of factors that are really holding them back and challenging affordability,” Powell told the committee members. “Now you have a shortage of skilled labor so it’s hard to get people on the job – electricians, plumbers, carpenters and other people – no matter what you pay them.”

When asked if immigration policy had anything to do with the lack of skilled labor, Powell said, “That’s what we hear from home builders. That’s part of it for sure.”

“It’s also hard to get lots,” he added. “And the rules for creating new lots are challenging. Material costs too, have gone up and some of that is tariffs. The home builders feel almost like they have been hit by a perfect storm here.”

Meanwhile, “strong employment, wage growth and lower mortgage rates are giving potential home buyers a healthy boost,” Kushi notes.

“The improvement in home builder confidence for single-family homes in July supports this narrative,” she says. “Lower mortgage rates and increasing household income should spur new home purchases.”

Last month, the Trump Administration announced that it was forming a White House Council on Eliminating Barriers to Affordable Housing Development that will, among other tasks, look at the impact that federal, state, and local regulations are having on the costs of developing affordable housing and the economy.

The new Council will consist of members from across eight federal agencies and will be chaired by Secretary of Housing and Urban Development (HUD) Ben Carson, the administration said in a release.

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