Real Estate

Rising Construction Costs Curbed Homebuilders’ Pace In April

The rising cost of lumber and appliances slowed the momentum of single-family building permits, starts and completions in April.

Property investors rode a wild wave during the pandemic, with the short-term rental market stopping, then restarting, and property prices in many second-home markets soaring. What does the future hold for new second-homeowners and for managers of more robust property portfolios? We’ll explore that and more, all May long, at Inman.

Skyrocketing lumber costs have slowed homebuilders’ momentum in the midst of a worsening inventory shortage, according to the U.S. Census Bureau’s New Residential Construction report released on Tuesday.

Single-family housing starts in April declined 13.4 percent month over month to 1,087,000, which represents 168,000 fewer construction projects. Privately-owned housing starts took a tumble from March to April (-9.5 percent); however, they were a whopping 67.3 percent above April 2020’s rate of 938,000.

On the other hand, single-family housing completions inched forward 0.1 percent month over month from 1,044,000 in March to 1,045,000 in April. Privately owned housing completions declined on a monthly basis (-4.4 percent) but outperformed April 2020 (+21.7 percent) for a rate of 1,449,000.

“Single-family starts in April dropped more than 13 percent compared to last month, but permits to build single-family homes saw a smaller decline,” Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni said in an emailed statement. “This is consistent with reports that builders are delaying starting new construction because of the marked increase in costs for lumber and other inputs like appliances.”

The pace of single-family building permits fared better than the pace of single-family housing starts; however, they declined 3.8 percent from March. That’s 45,000 fewer permits in one month.

“These supply chain constraints are holding back a housing market that should otherwise be picking up speed, given the strong demand for buying fueled by an improving job market and low mortgage rates,” Frantantoni said of slowing permits and starts.

Despite headwinds in the homebuilding industry, Senior Economist George Ratiu said housing demand is staying robust as buyers are willing to surmount financial barriers presented by construction costs and other buyers.

“Low mortgage rates, very tight supply of existing homes and a shift toward suburbs have made new homes highly attractive for today’s buyers,” Ratiu told Inman. “Builders are benefitting from a strong wave of demand, boosted by favorable demographic trends. Although the rising cost of building materials is pushing new home prices higher, so far it’s not deterring homebuyers.”

Although Frantantoni said April’s slowed building pace is still a “helpful addition to low supply levels,” the National Association of Home Builders is predicting there may be even less help on the way in May.

“Based on the latest NAHB data, however, many homebuilders are slowing their pace of sales in May to deal with supply chain constraints,” Ratiu noted. “A slowdown in the number of new homes coming to market will keep prices elevated, and will continue to make affordability the primary obstacle in this year’s housing markets.”

Nerdwallet home and mortgage expert Holden Lewis said the building pace is unlikely to regain momentum in upcoming months unless lumber supplies rebound.

“Prices for lumber and other materials have been volatile lately, and builders seem to be starting construction only after they are positive that the house will be sold at a profitable price,” he said.

Email Marian McPherson

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