The numbers: Home builders picked up the pace of new-home construction and permitting in August, with a sharp focus on multifamily housing.
U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.62 million in August, representing a 3.9% increase from the previous month’s upwardly-revised pace, the U.S. Census Bureau reported Tuesday . Compared with August 2020, housing starts were up 17.4%. The pace of permitting for new housing units also increased in August.
Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.73 million, up 6% from July and 13.5% from a year ago. Economists polled by MarketWatch had expected housing starts to occur at a pace of 1.55 million and building permits to come in at a pace of 1.62 million.
What happened: With both housing starts and building permits, the gains recorded in August were driven by an uptick in multifamily construction activity. Multifamily starts rose by nearly 22%, whereas single-family starts decreased by roughly 3% on a monthly basis.
Similarly, there were nearly 20% more permits issued for multifamily projects in August as compared with July, but only 0.6% more single-family homes.
The Northeast led the rest of the country in new-home construction, with a 167% increase in housing starts overall and a 52% increase in single-family starts. Comparatively, construction activity saw a smaller increase in the Midwest and South and a decline in the West.
The big picture: A faster pace of construction is just what the housing market needs, but it’s not clear that builders are making the exact types of homes the country needs.
“The pace of new construction reflected homebuilder shifts toward higher margin projects amid fluctuating costs,” George Ratiu, manager of economic research at Realtor.com, said following the report’s release. He added that “completed new homes have been mostly aimed at the premium segment of the market, with the share of new home sales priced at or below $300,000 dropping from 43% of total in 2018, to 32% in the first half of 2021.”
Part of the reason why builders are focused on more expensive projects is the high costs they continue to endure in their line of work. While lumber prices have dropped from the apex reached earlier this year, the cost of other building materials and labor remain especially high. As a result, construction companies have to focus on the projects most likely to see a larger return on investment.
Meanwhile, Realtor.com has estimated that the country is grappling with a shortage of some 5.2 million new homes due to years of under-building. As long as that backlog persists, buyers will face significant competition for homes, driving prices higher and potentially pricing many Americans out of the housing market entirely.
What they’re saying: “Though the gap between starts and permits has narrowed recently, permits are still materially higher, which suggests greater home construction down the road,” Robet Kavcic, senior economist at BMO Capital Markets, wrote in a research note.
“Builders continue to battle supply-side constraints, including a shortage of skilled labor, materials, and lots, all headwinds to increasing the pace of new home construction that is necessary to alleviate the supply shortages in today’s housing market,” said Odeta Kushi, deputy chief economist at title insurer First American Financial Services /zigman2/quotes/210452372/composite FAF -1.60% .