Mixed results came from the housing sector in October as housing starts inched down by 0.7% while building permits rose sharply by 4.0%, according to data from the Census Bureau on Wednesday.
Despite the month-to-month fluctuations, the supply of houses has come back to its long-term trend.
Because both are proxies for the future supply of houses, we continue to see that supply has somewhat stabilized in recent months after peaking in January for building permits and in March for housing starts, driven by torrid demand since the second half of last year.
In fact, despite the month-to-month fluctuations, the supply of houses has come back to its long-term trend from 2013 to 2019, posting 0.4% growth for housing starts and 3.4% growth for building permits on a year-over-year basis.
At 1.52 million new units in October, housing starts were slightly above the long-run equilibrium of 1.5 million units a year.
Yet as demand remains elevated, supply continues to lag behind buyers’ needs, causing prices to rise significantly. That increase effectively prices many potential buyers, including first-time home buyers, out of the market.
Supply chain bottlenecks
Supply chain issues continued to be the main reason that affected both building material costs and labor shortages, hampering builders’ ability to meet high demand.
Underneath the headline, single-family homes led the decrease in housing starts on the month, dropping to 1.04 million from 1.08 million in September. On the other hand, multifamily homes posted an increase of 32,000 new starts to 481,000 in October.
For building permits, both single-family and multifamily homes recorded significant increases on the month, up by 2.7% and 6.6%, respectively.
The number of buildings under construction continued to rise at 1.6% in October while completions dropped by 1.7%, also suggesting builders’ current struggle with getting enough materials because of the supply chain issues even as the increasing effort to build more houses was there.
The big picture of the housing market remains the same: Strong demand for houses is driving supply growth, but it will take quite a while for builders to catch up, especially as supply chain issues continue to be a challenge.
Such an imbalance between demand and supply will not be resolved anytime soon, and as a result will keep housing prices elevated well into next year.