US housing construction is falling, construction backlog is increasing as shortages worsen

Construction of detached houses by KB Home is shown under construction in Valley Center, California, USA June 3, 2021. REUTERS / Mike Blake

  • Commencement of housing falls 0.7% in October
  • Single-family starts fall 3.9%; multi-family up 6.8%
  • Building permits increase by 4.0%; single-family gain 2.7%

WASHINGTON, Nov. 17 (Reuters) – Detached house construction in the U.S. fell in October as the number of houses approved for construction but not yet started rose to a record high in 15 years, underscoring the disruption of the housing market from an ongoing shortage of materials and work.

Although the report from the Ministry of Trade on Wednesday showed an increase in permits for future housing construction, the increase was concentrated in the volatile multi-family house segment. This will to a small extent alleviate an acute shortage of homes on the market, which has led to record high annual house prices.

“Housing construction activity continues to swirl,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “There are zoning problems, higher land costs, labor shortages, and inflation has inflated the cost of raw materials.”

Commencement of detached houses, which account for the largest share of the housing market, fell 3.9% to a seasonally adjusted annual rate of 1.039 million units last month. The fourth consecutive monthly decline in pressure starts at the lowest level since August 2020. Housing construction fell in all four regions, with large declines in the northeast, midwest and west.

The densely populated southern country, where the main part of housing construction takes place, reported a decrease of 1.8% in the number of detached houses.

Commencement of housing and building permits

Housing construction has mainly trampled on water this year as builders are fighting against shortages and higher prices for raw materials. A survey by the National Association of Home Builders on Tuesday showed that confidence among detached house builders rose for the third month in a row in November, but noted that “challenges on the supply side, including bottlenecks in building materials and lack of land and labor, remain stubborn. “

Timber, which is used for framing, remains expensive and the prices of copper, another important material in housing construction, are high. In addition, there were about 333,000 vacancies in the construction industry at the end of September. Some household appliances are in short supply.

Reuters graphics

Construction costs increased by a record 12.3% year-on-year in October, according to producer price data published last week.

The material squeeze can ease in the winter, a typically slow season for housing construction in the Northeast and Midwest. Slowing down the demand for housing due to reduced affordability can also help reduce supply pressure.

Housing investment declined for the second quarter in a row in the third quarter. It will probably remain subdued for the last three months of the year.

“Supply chain bottlenecks are likely to limit construction activity in the short term, but the supply picture should look better in 2022,” said Abbey Omodunbi, senior economist at PNC Financial in Pittsburgh, Pennsylvania. “Failing reasonableness and rising mortgage rates will dampen demand next year.”

Shares on Wall Street traded lower. The dollar fell against a basket of currencies. US government bond prices were higher.


Starting for buildings with five units or more increased by 6.8% at a rate of 470,000 units last month. Workers returning to offices and schools reopening for personal learning, thanks to covid-19 vaccinations, are increasing the demand for rental apartments.

With a decline in the construction of detached houses, the total start-up of homes fell 0.7% to a rate of 1.520 million units in October.

Economists asked by Reuters had predicted that they would begin to return to a rate of 1.576 million units.

The starts have decreased from 1.725 million unit pace which was scaled in March, which was more than 14-1 / 2 years high.

Nevertheless, housing construction is still supported by a serious shortage of previously owned homes on the market, which has resulted in double-digit house price growth.

The backlog of detached houses that are authorized for construction, but which have not yet started, increased by 4.8% at a rate of 152,000 last month, the highest since August 2006. Permits for future housing construction increased by 4.0% at a rate of 1.650 million units in October. Single-family permits rose by 2.7% to a rate of 1.069 million units, which left them just starting.

Reuters graphics

Permits for buildings with five units or more increased by 6.5% at a rate of 528,000 units. Completed housing was unchanged at a rate of 1.242 million units. Completion of detached houses fell 1.7% to a rate of 929,000 units.

The stock of detached houses under construction increased by 1.4% to a rate of 726,000 units last month, the highest since May 2007. Multi-family dwellings under construction rose to the highest level in more than 47 years.

Over time, the housing backlog and more inventories can help bring more homes to market and cool house price growth, which has put some first-time buyers on the sidelines. However, much will depend on access to building materials and other input factors as well as labor.

“The recent decline in project completion has limited home sales in new communities,” said Mark Vitner, senior economist at Wells Fargo in Charlotte, North Carolina. “That said, the growing backlog of projects should keep developers busy for the next couple of years.”

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci

Our standards: Thomson Reuters Trust Principles.

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