Homebuyers continued to surge the new-home market that explains why builders increased the construction of single-family homes in August. The pace of single-family starts last month reached its highest level since February, just before the COVID-19 pandemic ignited across the U.S.
Based on the report from the Commerce Department, single-family rose by 4.1% in August to a seasonally adjusted annual rate of 1.02 million. Meanwhile, homebuilder sentiment last month rose to an all-time high as builders felt optimistic about current and future sales.
However, rising lumber costs could threaten to price more homebuyers out of the new-home market over the coming months, according to National Association of Home Builders’ Chairman Chuck Fowke and Chief Economist Robert Dietz. Low mortgage rates are helping to offset the rising costs somewhat.
Overall, housing production in August dropped 5.1% due to a double-digit decrease in the multifamily sector. Construction of apartment buildings and condos plunged 22.7% to an annual pace of 395,000 units. “Total housing starts were down in August on a decline for multifamily construction, with multifamily 5+-unit permits now down 8.3% on a year-to-date basis,” Dietz explains. “But low interest rates and solid demand are spurring single-family construction growth, which makes up the bulk of the housing market. Single-family permits continue to rise as well and are now up almost 7% on a year-to-date basis.”
Regionally, combined single-family and multifamily housing starts were highest in the Midwest, increasing 13.6% on a year-to-date basis, followed by a 5.4% increase in the South and a 3.8% increase in the West. Housing production, meanwhile, was 4.5% lower in the Northeast last month.
As Covid-19 caused cities and businesses to shut down operations, new home constructions were also put to a pause in the previous months.
Fortunately, those days are almost over as the Census Bureau has released data last June 17th showing that the housing starts have increased by 4.3% in May, with 934,000 new starts recorded for the month. Building permits also rose to 14.4% over April. Single-family permits also jumped by 11.9%.
This bodes well for the supply-strapped housing market but this is not a quick relief. It usually takes about 8 months for a permit to become a housing completion or a finished property ready for sale. This means that buyers won’t see the outcome from the production in May until early next year.
Fannie Mae’s chief economist says the Census Bureau report was weaker than expected but it seems that the housing construction has already turned a corner. Single-family starts should see a stronger June due to the limited housing supply and record-low mortgage rates, which have sent applications to purchase a home rising for the last nine weeks straight.
The rising buyer demand should also inspire builders. A data released by Redfin earlier this week shows that homebuying demand increases by 25% over pre-pandemic levels.
The latest data from the National Association of Home Builders proves as much. Based on their latest survey, builder confidence jumped from 21 points to 58 this week. Anything over 50 indicates general optimism among builders. Their chief economist said that as the nation reopens, the housing is currently well-positioned to lead the economy forward.