February new-home construction starts decreased 10.3% from the previous month and 9.3% from last year, but it’s not a result of less demand. Realtor.com says the drops in new-home construction can be attributed to last month’s cold weather. Permits for new homes also dropped 10.8% in February compared to January, but remains 17% higher than last year. Realtor.com says the factors pushing new-home demand high, such as low mortgage rates and remote working, are still in play. It is noted that other February housing data, such as new and existing home sales, will also be affected due to the winter storm.
But years of under-building following the Great Recession mean that the U.S. housing market now has a supply shortage, particularly on the existing-home front. Even first-time home buyers are now increasingly considering purchasing newly-built homes given the lack of other options.
“We’re just chronically under supplied after the global financial crisis,” said Sam Dunlap, chief investment officer at Angel Oak Capital Advisors, a Georgia-based investment management firm.
“The supply picture takes years to fix,” Dunlap added. “The one way we can solve this problem is to continue to build more single family units in the US to meet the ever increasing demand.”
This does not mean builders aren’t facing headwinds in their pursuit to construct more homes. Supply-side challenges are constraining builders’ capacity, said Odeta Kushi, deputy chief economist at title-insurance company First American. Among the headwinds Kushi cites are high lumber costs, a lack of affordable lots to build on and regulations that drive up the cost of construction.