May 24, 2021
Last week the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly released statistics summarizing new residential construction for the month of April, 2021 and their report garnered considerable attention. Despite unbridled demand in the face of an historic shortage of homes for sale, homebuilders actually started constructing 13.4 percent fewer homes in April than they did in March (1,087,000 compared to 1,255,000; figures are seasonally adjusted). The total number of privately-owned housing starts, including starts of multi-family structures, dropped 9.5 percent compared to March (1,569,000 vs. 1,733,000, seasonally adjusted).
Notably, privately-owned housing starts were up a whopping 67 percent compared to April, 2020, when the covid-19 pandemic was beginning to wreak havoc on the U.S. economy.
The consensus explanation for the slowdown in new housing starts is twofold. Industry experts claim the first critical contributing factor is tightened supply of many commodities, especially lumber, steel, gypsum and copper, making them more difficult to procure and markedly more expensive. Such tightness is attributable to a spike in demand coupled with pandemic-related supply chain disruption.
In response, some builders report they are pouring foundations (which count as “starts”), but holding off on framing, in hopes lumber prices, which were up 90% in April compared to one year ago, according to producer price data, will soon moderate.
In some cases, would-be new homeowners are electing to cancel construction contracts rather than be on the hook for potentially ballooning construction costs. A recent survey by the National Association of Home Builders found that nearly half of all builders are adding escalation clauses to their contracts in order to protect their exposure to rising costs.
The second critical shortage said to be contributing to the slowdown is in skilled labor. In April, construction employment remained below pre-pandemic levels. In this respect, the housing industry is in good company. U.S. businesses of all types and sizes report difficulty finding laborers at this time of rapid economic expansion.
Meanwhile, with the inventory of existing homes near record lows, home prices continue to jump at the fastest pace in over 15 years. It’s estimated that single-family housing starts must be at least 1.5 million per month in order to close the supply-demand gap, as opposed to April’s 1.1 million figure.
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