Limited availability and rising costs of construction materials are creating a slowdown in housing production. Overall housing starts dipped 9.5% in April from March to a seasonally adjusted annual rate of 1.57 million units, says the National Association of Home Builders. It should be noted that March housing production reached the fastest rate for combined single-family and multifamily construction in 15 years. Single-family starts at down 13.4% from March, bringing the three-month moving average down to 1.14 million starts. Multifamily construction remained flat at an annual rate of 482,000 for two or more unit 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 growing concerns over increasing lumber and other construction costs, as well as delays in obtaining building materials. Rising interest rates will also erode housing affordability in 2021, though rates have fallen back in recent weeks. Builders also reporting growing concerns about a more challenging regulatory environment that could limit land development volume. The NAHB forecast includes some weakening for single-family home building at the start of 2021 (off recent highs last Fall), with a return to the long-run post-Great Recession trend as the year progresses. This is consistent with the 3-month moving average data plotted above.
It is also worth noting that the number of single-family homes permitted but not started construction continued to increase in April, rising to 131,000 units. This is 47% higher than a year ago, as building material cost increases and delays slow some home building.