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15th May 2022

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Housing Starts Surge, But Is It Enough to Meet Demand?

Builders ramped up construction of new homes last month, starting 1.74 million units in March—the highest rate in 14 years and a welcome sign that efforts are underway to meet strong buyer demand, Lawrence Yun, chief economist at the National Association of REALTORS®, writes on the association’s Economists’ Outlook blog. “As trade-up buyers purchase newly constructed homes, their prior homes will show up in MLSs and [provide] more choices for consumers,” Yun notes. It could take four to eight months for newly started homes to be completed, Yun adds, “so be patient with the improvement to inventory.”

The increase in housing production comes at a time when builders are facing rising material costs and soaring lumber prices, analysts note. Housing starts in March jumped 19.4% year over year, the Department of Housing and Urban Development and the Census Bureau report. Broken out, single-family starts rose 15.3% to a seasonally adjusted annual rate of 1.24 million and were up nearly 20% in the first quarter of this year compared to the same time period in 2020. The multifamily sector, which includes apartment buildings and condos, rose nearly 31% to a pace of 501,000 units.

“Demand remains solid due to low mortgage rates and a thin level of inventory in the resale market, which is spurring the need for additional supply,” says Robert Dietz, chief economist at the National Association of Home Builders. “The test for the industry this year will be balancing growth and higher construction costs, given ongoing housing affordability challenges.”

Combined single-family and multifamily starts in March rose by the highest amounts in the Midwest, up 122.8% month over month—a jump economists attributed to favorable changes in seasonal weather patterns. The Northeast saw a 64% month-over-month jump, and the South recorded a 13.5% increase. The West was the only region to post a month-over-month decline, falling 13.6%.

Overall housing permits, a gauge of future production, rose 2.7% to a 1.77 million annual rate in March. Single-family permits increased 4.6% to a 1.2 million-unit rate while multifamily permits decreased 1.2% to a 567,000 pace. “Builder confidence remains strong, pointing to gains for single-family construction in 2021,” says Chuck Fowke, the NAHB’s chairman. “However, rising costs for most kinds of building materials continue to impede positive additional momentum in the market.”

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