Housing Starts Spring Forward in March Is the Market Too Hot? A number of unsustainable trends have developed in the housing market. The combination of a decade of underbuilding, favorable demographics, historically low interest rates, and a shift in consumer preferences have pushed single-family housing demand to the strongest levels in over a decade. However, there is simply not enough resale inventory to meet demand. Existing single-family inventory in March stood at a very lean 2.1-month supply — less than half of what a healthy market needs. Consequently, median resale pricing increased 17.2% year over year to more than $329,000. This magnitude of price growth — far in excess of underlying income growth — is not sustainable over the long run. The best means of protecting housing affordability is to boost inventory by increasing new home construction. Although home building is moving at its fastest pace since 2006, inventory stands at a thin 3.6-month supply. Moreover, inventory and sales of new homes are increasingly coming from homes that have not yet started construction, with this count up 150% over the last year. With the strong pace of single-family starts, building materials prices continue to rise on short supply. While not limited to lumber, lumber pricing is now up nearly 250% from a year ago, adding close to $36,000 to the average price of a new single-family home. A recent NAHB survey revealed that as a result of higher material costs, almost half of builders are including price escalation clauses in contracts, 29% are pre-ordering lumber prior to need, and 19% are delaying some building activity. Given these price increases for materials and existing housing, some analysts are talking about bubbles. However, the market is not in a bubble because this price growth is predominantly driven by lack of supply and true demographic demand (as opposed to loose mortgage underwriting). Nonetheless, the current pace of housing price growth is pushing affordability down. And clearly, inflation pressures are building in the economy. The question for the Federal Reserve is whether these forces will be long lasting or transitory as the economy restarts after the unusual recession of 2020. –NAHB Chief Economist Robert Dietz Page 8 Housing production jumped in March despite rising lumber and other material prices affecting the housing industry. Overall housing starts increased 19.4% percent to a seasonally adjusted annual rate of 1.74 million units, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This was the fastest pace for combined single-family and multifamily construction since June 2006. The March reading of 1.74 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 15.3% percent to a 1.24 million seasonally adjusted annual rate. The three-month moving average (a useful gauge given recent volatility) did dip to 1.16 million starts, as charted below given past month data revisions. Single-family housing starts are up 19.6% on a year-to-date basis, when comparing the first quarter of 2021 to the first quarter of 2020. It is also worth noting that the number of single-family homes permitted but not started construction continued to increase in March, rising to 124,000 units. This is 39% higher than a year ago, as building material cost increases and delays slow some home building. As an indicator of the economic impact of housing, there are now 636,000 single-family homes under construction. This is 19% higher than a year ago. There are currently 670,000 apartments under construction, off a post-Great Recession high mark set in August 2020 (683,000) and down slightly from a year ago. On a regional basis and on a year-to-date basis, combined housing starts are 23% higher in the Northeast, 28% higher in the Midwest, 5% higher in the South, and 10% higher in the South. Overall housing permits increased 2.7% to a 1.77 million unit annualized rate in March. Single-family permits increased 4.6% to a 1.20 million unit rate. Multifamily permits decreased 1.2% to a 567,000 pace. Looking at regional permit data compared to the previous month, permits are 8.0% lower in the Northeast, 2.0% higher in the Midwest, 6.4% higher in the South and the West remained even.
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