June Housing Starts Remain Strong, Permits Continue to Weaken

Housing production remained strong in June, says the National Association of Home Builders, but rising construction and material costs may be the reason for a drop in issued permits. Housing starts increased 6.3% last month, according to data from the Census Bureau, but single-family permits for new construction dropped 6.3%, continuing the permit decline happening since March. Multifamily permits also declined by 2.6% and have steadily declined since April. The NAHB says it’s the “clear impact” of higher building material costs. 

The June reading of 1.64 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 6.3% to a 1.16 million seasonally adjusted annual rate. Single-family housing starts are up 31% on a year-to-date basis; however, the numbers are distorted by the weak readings of the Spring of 2020. As is the case for builder confidence, starts are trending somewhat lower off peak market conditions during the 2020 rebound last Fall.

The multifamily sector, which includes for-rent apartment buildings and condos, was up 6.2% at a 483,000 annual rate for 2+ unit construction. After posting a slight decline in 2020, multifamily construction has been strong in 2021, led by gains for suburban apartment construction.

Builder confidence remains solid in spite of supply-side challenges, according to the NAHB/Wells Fargo Housing Market Index (HMI). However, after peaking at a level of 90 last November, builders report challenges concerning elevated lumber and other construction costs, as well as delays in obtaining building materials and appliances with the HMI now standing at a level of 80.

It is also worth noting that the number of single-family homes permitted but not started construction appears to be leveling off, now standing at 144,000 units. This is 58% higher than a year ago, as building material costs increase and delay some home building but it has leveled off in recent months.

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