It’s the perfect storm. High demand, low inventory, and rising prices. And homebuilders can’t build fast enough to keep up with demand. Rising material costs and supply chain delays are proving a challenge, making it more difficult to keep new homes within buyers’ and builders’ budgets.
Despite this, the construction of single-family homes rose 4.2% in May, poised to slow again as single-family permits—a gauge to future construction—declined to the slowest pace since September 2020, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau reported last Wednesday.
According to the National Association of Realtors (NAR), any type of slowdown in home building could prove problematic for the housing market, estimating that the nation faces a severe housing shortage (5.5 to 6.8 million homes). According to NAR, the industry is on track for only 1.6 million and 1.7 million new housing units this year and next, respectively. Still, “that would represent the best two-year performance in 15 years, yet it would still be inadequate,” says Lawrence Yun, NAR’s chief economist. “Therefore, expect both rents and home prices to outpace overall consumer price inflation in the upcoming years.”
Overall, housing starts both the single-family and the multifamily sectors rose 3.6% in May compared to April and regionally, combined single-family and multifamily starts were 46.3% higher in the Northeast, up 37.2% in the Midwest, 26.4% higher in the West, and 19% higher in the South. The gains are comparative, however, coming off low activity levels compared to last spring, the onset of the pandemic.
The National Association of Homebuilders says policymakers need to help the industry’s supply-chains to protect housing affordability but are also buoyed by the recent news that lumber prices are dropping fast.