Home Construction Backlog Surges, Worsening Shortages, Even as Multifamily Starts Increase

Highlights:

•     Housing starts fall 0.7% in October
•     Single-family starts drop 3.9%; multi-family up 6.8%
•     Building permits rise 4.0%; single-family gain 2.7%

WASHINGTON, Nov 17 (Reuters) - U.S. single-family homebuilding tumbled in October while the number of houses authorized for construction but not yet started jumped to a 15-year high, underscoring the disruption to the housing market from an ongoing shortage of materials and labor.

Though the report from the Commerce Department on Wednesday showed an increase in permits for future homebuilding, the rise was concentrated in the volatile multi-family housing segment. This will do little to alleviate an acute shortage of houses on the market, which has led to record annual gains in home prices.

"Residential housing construction activity continues to flounder," said Christopher Rupkey, chief economist at FWDBONDS in New York. "There are zoning problems, higher land costs, a lack of labor, and inflation has inflated the cost of raw building materials."

Single-family housing starts, which account for the largest share of the housing market, dropped 3.9% to a seasonally adjusted annual rate of 1.039 million units last month. The fourth-straight monthly decline pushed starts to the lowest level since August 2020. Homebuilding fell in all four regions, with large decreases in the Northeast, Midwest, and West.

Permits for buildings with five units or more surged 6.5% to a rate of 528,000 units. Housing completions were unchanged at a rate of 1.242 million units. Single-family home completions dropped 1.7% to a rate of 929,000 units.

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

Over time the housing backlogs and more inventory could help to bring more homes on to the market and cool the house price inflation, which has sidelined some first-time buyers. A lot will, however, hinge on the supply of building materials and other inputs as well as labor.

"The recent slowdown in project completions has limited home sales in new communities," said Mark Vitner, a senior economist at Wells Fargo in Charlotte, North Carolina. "That said, the growing backlog of projects should keep builders busy for the next couple of years."

Source: Reuters. Story by Lucia Mutikani. Read full story.