Homebuilding Is Booming, But Is It Enough?

October 21, 2020

As October began, homebuilding starts were up more than 8% compared to a year ago. But that increase in new homes on the market is still not enough to meet demand, says Lawrence Yun, chief economist of the National Association of REALTORS®. Housing starts in September were at a 1.42-million-unit production level on an annualized basis, but Yun says the annualized number of permits, 1.55 million homes, will better meet housing demand. Permits are considered to be a leading sign of the number of starts.

Rising lumber prices and a shortage of construction workers continue to constrain homebuilding, Yun said.

Still, September’s homebuilding pace was the highest pace for single-family starts since June 2007, according to the National Association of Home Builders. Starts in the multifamily sector, which includes condos and apartments, continue to struggle amid the pandemic, plunging 16.3% last month to a pace of 307,000.

“The housing market remains a bright spot in the U.S. economy, and that is reflected in the positive housing starts report,” says Chuck Fowke, chairman of the NAHB. “Builder confidence is at an all-time high as buyer traffic is strong—another sign that housing is helping to lift the economy.”

On a regional basis, combined single-family and multifamily housing starts from January through September were highest in the Midwest, an 11% increase, followed by a 5.7% gain in the South and a 4.5% increase in the West. Homebuilding was down 1.4% in the Northeast, the Commerce Department’s data shows.

New-home construction likely will stay elevated over the months to come. “Home sales have exceeded for-sale construction recently, which means additional homebuilding in the near term,” says Robert Dietz, the NAHB’s chief economist. “Demand is being supported by low interest rates, a suburban shift in demand, and demographic tailwinds. However, headwinds due to limited building material availability is slowing some construction activity despite strong demand, with authorized but not started single-family homes up 22.4% compared to a year ago.”