Economists: Builders Add More Inventory, But Not Enough

August 17, 2018

Homebuilding eked out a slight increase in July, but economists say it’s still not nearly enough to catch up with home buyer demand or to help cool rising home prices. The Commerce Department reported Thursday that total housing starts for both single-family homes and multifamily building rose 0.9 percent last month to a seasonally adjusted annual rate of 1.17 million units. This was following a nine-month low in June of 1.16 million.

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Homebuilding was on the rise the most in the Midwest last month, increasing 11.6 percent month over month, with a 10.4 percent in the South. On the other hand, construction plunged by 11 percent in the West and by 4 percent in the Northeast.

Housing starts are 1.4 percent lower compared to the same month one year ago, the Commerce Department reports. But from year-to-date, housing starts are up 6.2 percent from the same period a year ago.

Still, some economists say the lack of new homes entering the pipeline is not helping to lift inventory woes for the overall housing market.

“Given the chronic lack of affordable housing and rapidly escalating home prices, it is worrisome that on a per capita basis, the country is producing new single-family housing stock at a rate that is similar to the trough of a typical recession,” Sam Khater, chief economist at Freddie Mac, told Reuters.

Some new-home projects are seeing construction delays due to cost concerns too, according to the National Association of Home Builders. The NAHB also notes the number of single-family units that are authorized but have not started is up 25 percent since July 2017.

“Supply-side challenges, including increases in material prices and chronic labor shortages, are affecting affordability in many markets,” says Robert Dietz, the NAHB’s chief economist. “However, consumer demand remains strong, due to a growing economy and job market and favorable demographics.”

Housing permits, a gauge of future construction, increased 1.5 percent in July to 1.31 million units. Broken out, single-family permits rose 1.9 percent to 869,000 and multifamily permits were up 1.7 percent to 410,000.