New home starts in August continued a year-over-year increase, but experienced a 5% decrease from the previous month. This does not necessarily mean all home building dipped last month, but it does describe the activity of one type of construction: multifamily. Between July and August, multifamily starts dropped by 25%, according to MarketWatch. Permits issued for multifamily buildings also steeply declined by 17% month over month. New single-family construction and permits are still on the rise, increasing by 4% between July and August. Besides multifamily construction, the reasoning for the dip in construction may be attributed to home builders no longer taking new projects as they try to work through their backlog.
The big picture: The slump in home building reported for August doesn’t mean that real estate is no longer a bright spot in the overall economy’s rebound from the coronavirus pandemic. Rather, it is indicative of a slight pullback from the outsized jump in activity reported in July, analysts said.
Builders are still working through a backlog of projects that they received permits for but could not get started earlier this year because of the pandemic. Demand for housing remains high, by most accounts. Low mortgage rates are encouraging prospective buyers to speed up their timelines and purchase a home sooner rather than later, particularly in the suburbs.
Still the construction industry faces some headwinds. “With labor shortages and rising lumber costs compounding slowing activity, consumers can expect much higher prices for new homes over the next 12 months,” said George Ratiu, senior economist at Realtor.com.