The U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD) have released their findings on new residential construction statistics for October 2021, which found U.S. housing starts decreasing to an annual pace of 1.52 million in October, below its anticipated count of 1.58 million, but higher than totals just one year ago. The October rate for units in buildings with five units or more was 470,000.
“Homebuilder sentiment remains on solid footing, despite affordability concerns, material shortages and other supply-side headwinds (labor, lots and land),” said Odeta Kushi, First American Deputy Chief Economist. “Sentiment remains solid because rates remain near historic lows, rising household income and household formation among millennials continue to fuel demand for homes.”
As supply and demand imbalances continue to cause issues for prospective buyers, CoreLogic’s latest Home Price Index (HPI) and HPI Forecast found that demand for the short supply of homes listed remained solid through the end of the summer, driving prices upward 18% year-over-year in September.
Privately‐owned housing completions in October were at a seasonally adjusted annual rate of 1,242,000, unchanged from the revised September estimate of 1,242,000, but 8.4% below October 2020’s rate of 1,356,000. Single‐family housing completions in October were at a rate of 929,000, 1.7% below the revised September rate of 945,000. The October rate for units in buildings with five units or more was 302,000.
“Total units under construction including multifamily units were the highest since 1973,” said Douglas G. Duncan, Chief Economist at Fannie Mae. “Demand for new housing remains robust given the lack of existing homes for sale, and continued strong house price appreciation is supportive of more construction. We expect an increase in the number of homes brought to completion next year, as builders work through their backlogs, but our forecast is for only a modest rise in starts next year due to capacity constraints. If builders can somehow work these out in a more timely manner however, demand is currently sufficient to support a considerably higher pace of starts than what is occurring.”
Privately‐owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,650,000, 4% above the revised September rate of 1,586,000, and 3.4% above the October 2020 rate of 1,595,000. HUD and Census Bureau reported that single‐family authorizations in October were at a rate of 1,069,000, 2.7% above the revised September figure of 1,041,000.
“While groundbreaking on new home homes slowed in October, housing permits–a leading indicator of future starts—increased to an annual pace of 1.65 million, which is a good sign that home building is beginning to accelerate to keep up with the pace of household formation,” said Kushi. “Single-family permits, while still down from pandemic highs, are nearly 6% higher than pre-pandemic (February 2020). Yet the number of single-family homes permitted, but not started increased this month and is 43% higher compared with one year ago, at tell-tale sign of ongoing supply chain issues.”
As noted by Realtor.com Chief Economist Danielle Hale, builders continue to factor rising costs and prices as they manage their pipelines to account for supply chain issues.
“Builders are also passing rising costs on to consumers through higher new home prices, which may become an increasingly challenging hurdle if mortgage rates also begin to climb, as they are expected to do,” said Hale.
National Association of Realtors (NAR) Chief Economist Lawrence Yun reported earlier this week that the housing market, while experiencing 15-year highs slated to continue through the end of 2021, will taper off through 2022.
"The housing sector's success will continue, but I don't expect next year's performance to exceed this year's," warned Yun.