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Multi-family housing boosts U.S. homebuilding; supply constraints seen unrelenting

EconomyJanuary 19, 2022 12:15PM ET

© Reuters. FILE PHOTO: Residential single family homes construction by KB Home are shown under construction in the customs of Valley Center, California, U.S. June 3, 2021. REUTERS/Mike Blake

By Lucia Mutikani

WASHINGTON (Reuters) - U.Due south. homebuilding rose to a ix-month high in December amid a surge in multi-family housing projects, but soaring prices for materials after the government nearly doubled duties on imported Canadian softwood lumber could hamper action later this yr.

The report from the Commerce Department on Wednesday also showed the housing construction excess surged to a record high last month, underscoring the challenges builders are facing from supply strains, including labor shortages. Completions tumbled besides. Rise mortgage rates could as well restrain homebuilding.

"Builders are gladly trying to meet demand, but supply problems and labor shortages are slowing them downwards," said Jennifer Lee, a senior economist at BMO Upper-case letter Markets in Toronto. "Softwood lumber duties are going to hurt this spring."

Housing starts rose 1.4% to a seasonally adjusted annual rate of 1.702 one thousand thousand units concluding month, the highest level since March. Economists polled past Reuters had forecast starts falling to a rate of 1.650 meg units.

The volatile multi-family housing segment accounted for the rise in homebuilding last month, with starts for buildings with 5 units or more than surging 13.7% to a rate of 524,000 units. At that place is strong demand to rental housing.

Single-family unit housing starts, which account for the largest share of the housing market, dropped 2.3% to a rate of 1.172 million units terminal month. Single-family unit homebuilding soared in the Northeast and Midwest, likely boosted by unseasonably mild temperatures. December 2021 was the warmest December on record, according to the National Centers for Environmental Information.

The densely populated South, where the bulk of homebuilding occurs, reported an 8.two% decrease in unmarried-family starts. Homebuilding also roughshod in the West.

Housing starts totaled ane.595 one thousand thousand in 2021, up 15.half dozen% from 2020. But the outlook for habitation building this year is uncertain. The United States last November near doubled the duties on imported Canadian softwood lumber to 17.9% from 9% after a review of its anti-dumping and countervailing duty orders.

According to the National Association of Homebuilders on Tuesday, the amass cost of residential construction materials had increased well-nigh 19% since December 2021. The NAHB said higher material costs and shortages were calculation weeks to typical single-family home construction times.

Prices for softwood lumber, used for framing, soared 24.iv% in December after rise vi.9% in Nov, co-ordinate to the latest producer price data. Lumber futures accept also surged.

Stocks on Wall Street were lower. The dollar slipped confronting a basket of currencies. U.South. Treasury prices rose.

HUGE BACKLOG

The backlog of houses authorized for construction only not yet started shot upwards 1.one% to a rate of 270,000 final month, the highest on record. Permits for future homebuilding jumped 9.1% to a rate of 1.873 million units in December, an 11-month high. They accelerated 17.2% in 2021.

Permits are at present running ahead of starts, which should underpin homebuilding in the coming months. Permits for buildings with v units or more than soared xix.9% to a rate of 675,000 units. Unmarried-family building permits rose 2.0% to a charge per unit of 1.128 meg units.

An acute shortage of previously endemic homes bachelor for sale is supporting homebuilding, but rising mortgage rates, supply constraints together with higher house prices could make domicile purchasing less affordable.

Housing completions tumbled 8.7% to a rate of i.295 1000000 units, reflecting a 34.3% plunge in multi-family unit housing units. Single-family unit abode completions increased 3.ix% to a rate of 990,000 units.

The inventory of unmarried-family housing nether construction rose ii.3% to a rate of 769,000 units last calendar month, the highest since February 2007. Multi-family homes nether construction advanced ii.four% to a rate of 737,000 units.

"Every bit long as supply chains remain stressed, builders will struggle to consummate projects, slowing sales and probable limiting growth in the supply of new homes," said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.

The 30-yr stock-still-rate mortgage averaged 3.45% during the week ending Jan. 13, the highest since March 2020 and up from 3.22% in the prior week, according to data from mortgage finance agency Freddie Mac (OTC:).

An analysis by some other mortgage finance agency Fannie Mae on Midweek showed housing affordability was increasingly becoming constrained, which could limit home sales this year.

"We observe an early on indication of this in recent increases in debt-to-income measures associated with incoming mortgage originations," said Doug Duncan, chief economist at Fannie Mae in Washington.

Mortgage rates have risen as financial markets price in an interest rate increase from the Federal Reserve in March amid loftier inflation and a labor market place that is at or near maximum employment.

Expectations that mortgage rates will keep rising are cartoon buyers into the market.

A report from the Mortgage Bankers Clan on Wednesday showed applications for loans to buy a home increased viii% concluding calendar week.

"This year is likely to be sideways at all-time for residential home builders," said Christopher Rupkey, master economist at FWDBONDS in New York. "Information technology will be interesting to meet if college mortgage rates absurd the housing bubble in prices because the lack of new supply volition probable remain the dominant trend for another year."

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