May 22, 2023

New Construction is Under Supplied but There is a Silver Lining

The United States Census Bureau released its Residential Construction report for the month of April. This report showed that Housing Starts, or the breaking of ground, rose in April by 2% to a 1.4 million unit annualized pace. Year over year Housing Starts are down 22%. Single-Family Starts, actually rose 1.6% last month at an 846,000-unit pace. Year over year, Single-Family Starts are down 28%. This will keep supply very tight. Housing Permits, which is where future supply comes from, were down 1.5% last month at a 1.416 million unit annualized pace and down 21% year over year. Single Family permits were up 3.1%, but are down 21% year over year. Housing Completions fell by 10.4% last month and Single-Family Completions fell by 6.5%. It is evident that we are very undersupplied, and we can also see that there is not much inventory on the way. And with construction costs being so high along with the Fed hiking rates so aggressively, it makes less sense for builders to construct homes.

Another important construction report that was recently released was the National Association of Home Builders Housing Market Index (NAHB). This report measures builder confidence. This report came in much stronger than the expectation of no change. The report actually rose by 5 points in May and is on its way back to the breakeven of 50. This breakeven is important because it measures the level between expansion and contraction. Builder confidence has risen for five months straight. It is also at its highest level since July of 2022. When looking deeper into the report, the Current Sales segment was up by 5 points to 56. Future Sales Expectations were higher by 7 points to 57. Buyer Traffic rose 2 points to 33, but was still below 50, which is seen as less optimistic. For comparison and despite a strong housing market this time last year, Buyer Traffic was only at 53. Confidence is building amongst home builders because where there are no existing homes for sale, they are growing in market share. They are also growing in market share due to the incentives they are using. The NAHB said that 54% of builders offered incentives to help increase sales. That is down from 59% in April and the recent peak of 62% in December. It was also reported that 27% are reducing prices, but that is down from 30% in April and 36% from last November. This report does point to growing optimism in new home construction.

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By: Jon Iacono
A Family

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