New Home Construction Stabilizes, Slowdown Could Be Looming

The new home construction rollercoaster continued in May with housing starts bouncing back up after falling in April, but a lack of available building materials could soon lead to a protracted decline in homebuilding.

According to a new report from the Census Bureau and Department of Housing and Urban Development, new single-family home construction increased by 4.2% in May over April.

Single-family housing starts increasing in May means that new home construction has now bounced back and forth between increasing and decreasing in each month since February.

In April, housing starts fell by 13.4%. However, in March, housing starts increased by 15.3%. But in February, new home construction was down by more than 10%.

It was the same song, different verse in May as housing starts increased, but there could be a more definitive slowdown on the horizon.

According to the National Association of Home Builders, single-family permits fell to the lowest pace since in nine months due to rising costs of the materials needed to build a house.

“Single-family permits declined to the lowest pace since September 2020 as the home building market cools somewhat to adjust to higher prices and longer delivery times of building materials,” said NAHB Chief Economist Robert Dietz.

“The count of single-family homes permitted but not started construction is up 53% over the last year due to both gains for home construction since the onset of the 2020 virus crisis and the delay of some building projects due to higher costs for materials and labor,” Dietz added.

According to NAHB, the number of single-family homes that had a permit to begin building but have not started construction continued to rise in May, climbing to 142,000 units. NAHB notes that this is 53% higher than a year ago.

“Single-family starts held firm in May as demand remains strong despite recent gains in new home costs,” said NAHB Chairman Chuck Fowke. “However, single-family permits posted a decline as higher construction costs are deterring some residential construction activity. Policymakers need to help the industry’s supply-chains in order to protect housing affordability.”