Struggling Housing Starts Outweigh Growing Demand

July 20, 2018

Despite the growing demand for single-family housing, the U.S. construction industry is finding it difficult to keep up due to the continuously increasing material costs. According to the National Association of Home Builders (NAHB) and the latest data from HUD and the Commerce Department, these struggles were reflected in the total housing starts for June when overall home construction plummeted to a nine-month low.

On July 18, NAHB reported a 12.3% drop in total housing starts last month—single-family and multifamily starts fell 9.1% and 19.8%, respectively. While overall construction permits decreased 2.2%, single-family permits had a slight gain of 0.8% compared to the 7.6% decline in multifamily permits. Experts noted that permit readings help determine the likelihood of future housing production, which is nearly 8% higher than this time last year but expected to dwindle in coming months.

“The concern over material costs, especially lumber, is making it more difficult to build homes at competitive price points, particularly for newcomers entering the housing market,” NAHB Senior Economist Michael Neal said in the report. “Moreover, the soft permit report does not suggest a significant increase in housing production in the near term.”

Wells Fargo’s housing construction analysis cited tariffs as the culprit behind rising material costs and “a key challenge in meeting rising demand.” The Producer Price Index for construction materials and components reached its second-fastest pace in nearly a decade at a three-month annualized rate of 10.4%.

The Northeast region saw the worst decline in combined housing starts with a 40% drop, NAHB reported, followed by a staggering 35.8% in the Midwest.

-Andrew Michaels, editorial associate

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