Nearly 1 million new homes are in the pipeline
Single-family housing starts hit an annualized rate of 997,000 in May, up significantly from earlier this spring but still down year-over-year.
Key points:
- Overall housing starts, which includes apartments and condos, are up 5.7% year-over-year at 1.63 million.
- Prices for new homes may continue to rise due to a continued shortage of labor and materials.
- Still, homebuilders are becoming more confident as the supply chain slowly improves.
As existing home sellers sit on the sidelines, homebuilders are ramping up efforts to get more inventory on the market.
The number of single-family housing starts was 997,000 in May, according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. While down slightly year-over-year, the total number of homes in the early stages of construction, based on a seasonally adjusted annualized rate, was 18.5% higher than in April and the highest total since June 2022.
Housing starts measure the number of units builders have broken ground on, and they are considered a useful bellwether of confidence in the housing sector and the economy as a whole. While buyers won't see these new homes on the market for a while, the rising number of housing starts is a sign that more inventory is on the way.
"For buyers and homeowners looking to move, the pipeline of new homes opens doors toward more options," said George Ratiu, chief economist at Keeping Current Matters. He noted, however, that "most new homes coming to market are not affordable to entry-level buyers," but "some builders may offer more flexibility with financing terms, offering a viable solution for those hampered by today's higher mortgage rates."
But buyers eager to purchase one of these new homes coming to market in the coming year may experience some sticker shock.
"Builders are still facing a shortage of labor and rising lumber prices, following the severe wildfires in Canada, which have forced sawmills to close, reducing available supply," Ratiu said. "Considering that construction costs account for 61% of a new home's price, this rebound is likely to keep new home prices going higher."
Despite the labor and material shortages, confidence is rising in the construction industry, according to the National Association of Home Builders. The association's builder confidence index moved into positive territory in June for the first time in 11 months.
"The May housing starts data and the latest builder confidence NAHB/Wells Fargo HMI survey both point to a bottom forming for single-family residential construction earlier this year," said Robert Dietz, chief economist at the NAHB, in a blog post. He noted that the supply chain is improving, although there are some challenges that persist.
The number of single-family homes completed in May — just over one million units at a seasonally adjusted rate — was 3.9% higher than April but lower than the first three months of the year.