What Does a Drop in Building Permits Mean for Future Construction?

Data released this week from the U.S. Census Bureau point toward a slowdown for new-home construction. CNBC reports that single family housing starts remained elevated in June from May, but building permits, which point toward building starts further down the line, dropped. Building permits decreased to more than predicted and the lowest point since August 2020. And on the buyer side, data also points toward a pullback. Mortgage applications to purchase a new home fell 24% in June compared to June 2020, according to data from the Mortgage Bankers Association. This marks the third month of declines in mortgage applications.

“Homebuilders are encountering stronger headwinds of late, as severe price increases for key building materials, rising regulatory costs, and labor shortages impact their ability to raise production. This has dampened new home sales and quickened home-price growth,” said Joel Kan, an MBA economist.

The average loan amount also hit another record high at $392,370.

“In addition to price increases, we are also seeing fewer purchase transactions in the lower price tiers as more of these potential buyers are being priced out of the market, further exerting upward pressure on loan balances,” Kan added.

The latest developments come after the coronavirus pandemic produced the hottest year for both housing demand and home construction in more than a decade.

Homebuilder sentiment, while still high, dropped in July, with builders citing continued pressure on construction costs. Lumber prices, which shot up during the pandemic and hit a record high just a few months ago, have fallen back dramatically. So far, however, that savings has not trickled down to consumers or builders. Prices for other materials are also still rising.

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