Rising costs of steel, wood and copper hamper housing construction and push house prices out of reach
Residential construction rebounded less than expected in May as very expensive lumber and shortages of other materials continued to limit the ability of builders to take advantage of an acute shortage of homes in the market.
The Commerce Department’s latest housing report on Wednesday also showed permits for future home construction fell to their lowest level in seven months. Housing completions have also declined, as the number of dwellings approved for construction but not yet started has reached its highest level since 1999, indicating that supply is likely to remain limited for some time and stimulate price inflation. housing.
“Shortages of materials and labor make it difficult for builders to increase production of new homes, although demand remains strong,” said Robert Frick, business economist at the Navy Federal Credit Union . “Potential home buyers should expect tight inventories and higher prices for new and existing homes for the foreseeable future.”
Housing starts rose 3.6% to a seasonally adjusted annual rate of 1.572 million units last month. Data for April has been revised downward to a rate of 1.517 million units from the previously reported 1.569 million units.
Revolutionary activity increased in the densely populated Midwest, West and South, but declined in the Northeast.
Economists polled by Reuters had expected housing starts to rise to 1.630 million units. Last month’s increase left housing starts below the March rate of 1.725 million units, which was the highest level since June 2006. Housing starts, however, jumped by 50. 3% year-on-year in May.
Single-family home construction, the largest share of the housing market, grew 4.2 percent to a rate of 1.098 million units. Housing starts in the volatile multi-family housing segment rose 2.4% to 474,000 units.
Softwood lumber prices rose a record 154.3% year-on-year in May, according to the latest producer price data. Lumber futures fell from all-time highs set in early May as sawmills ramped up production and imports increased. However, the prices remain very high.
A National Association of Home Builders survey on Tuesday showed that builder confidence of single-family homes fell to its lowest level in 10 months in June.
Higher costs and declining availability of softwood lumber, copper, steel and other building materials have pushed up prices for new homes.
The NAHB blamed the weakening sentiment on “rising costs and declining availability of softwood lumber and other building materials,” noting that this pushed up new home prices “which slowed down the sustained pace of residential construction “.
Copper is scarce, while tariffs on steel imports also raise construction costs, pushing up new housing prices and contributing to higher inflation. Some devices are also scarce due to a global semiconductor shortage.
A separate Labor Ministry report released on Wednesday showed import prices rose 1.1% in May. That brought the year-over-year increase to 11.3%, the largest increase since September 2011, from 10.8% in April.
“The United States experiences cost-based inflation, which has historically been shown to be more temporary than other causes of inflation, primarily pulling demand,” said Ryan Sweet, senior economist at Moody’s Analytics.
Demand for larger, more expensive housing amid the Covid-19 pandemic, which has left millions of Americans working from home, is driving the housing market boom. The inventory of homes already owned is near record lows.
House prices have risen the most in more than 15 years on an annual basis, raising fears that some first-time buyers may be excluded from the market.
The housing market has been the star player in the economic recovery. Investment in residential construction has grown in double digits since the third quarter of last year. Most economists expect housing to contribute modestly to gross domestic product growth in the second quarter.
“New residential construction remains strong, but prices and the availability of building materials are likely to remain significant headwinds,” said Charlie Dougherty, economist at Wells Fargo.