Cooling Trends Continue for Housing

NAHB Chief Economist Robert Dietz recently provided this housing industry overview in the bi-weekly e-newsletter Eye on the Economy.

The pace of home building continued to slow in July, blighted by a combination of supply-chain constraints and diminishing housing affordability.

Overall housing starts decreased 7% to a seasonally adjusted annual rate of 1.53 million units. Although single-family home building is up 27% on a year-to-date basis (when compared to the declines in the spring of 2020), single-family starts dropped 4.5% from the previous month and permits were at the lowest pace since July 2020.

These data are consistent with the NAHB/Wells Fargo Housing Market Index, which fell 5 points to a level of 75. This is the lowest reading in 13 months as builders continue to grapple with higher building material costs (up 13% for the first half of 2021 alone on aggregate, despite lower lumber costs) and long delivery times for items such as windows, flooring, OSB and appliances.

The multifamily sector, which includes for-rent apartment buildings and condos, was down 13.1% in July at a 423,000 annual rate for 2+ unit construction. Multifamily construction is up about 10% year to date, but the July starts estimate was the lowest since February.

Higher construction costs and solid housing demand have produced significant increases for home prices and rents — with additional hikes on the way. And those higher cost burdens have weakened housing affordability.

Indeed, according to the NAHB/Wells Fargo Housing Opportunity Index, just 56.6% of new and existing homes sold between April and the end of June were affordable to families earning the U.S. median income ($79,900). This marks the lowest level of affordability since the first quarter of 2012.

Although these challenges have taken some steam off the market, demand remains strong. The primary challenges for the industry remain to improve lot, labor and material pipelines, and to balance local affordability conditions as costs rise faster than incomes.