New home construction activity improves as builders focus on high margin projects

Numbers: Homebuilders stepped up the pace of new home construction and permits in August, with a heavy emphasis on multi-family dwellings.

U.S. homebuilders began building homes at a seasonally adjusted annual rate of 1.62 million in August, a 3.9% increase from the revised upward pace the month before, reported Tuesday. the US Census Bureau. Compared with August 2020, housing starts are up 17.4%. The pace of issuing permits for new housing units also increased in August.

Permits for new homes occurred at a seasonally adjusted annual rate of 1.73 million, up 6% from July and 13.5% from a year ago. Economists polled by MarketWatch expected housing starts to occur at a rate of 1.55 million and building permits at a rate of 1.62 million.

What happened: For both housing starts and building permits, the gains in August were fueled by an increase in multi-family construction activity. Multi-family housing starts are up almost 22%, while single-family housing starts are down about 3% on a monthly basis.

Likewise, almost 20% more permits for multi-family projects were issued in August compared to July, but only 0.6% more for single-family homes.

The Northeast dominated the rest of the country in new home construction, with a 167% increase in overall housing starts and a 52% increase in single-family housing starts. In comparison, construction activity saw a smaller increase in the Midwest and South and a decline in the West.

The big picture: A faster pace of construction is exactly what the housing market needs, but it’s not clear that builders are making the exact types of homes the country needs.

“The pace of new construction reflects the move by home builders towards higher margin projects in an environment of fluctuating costs,” said George Ratiu, director of economic research at, after the report was released. He added that “the new homes completed were primarily aimed at the high-end segment of the market, with the share of sales of new homes priced at or below $ 300,000 dropping from 43% of the total in 2018 to 32% in the former. semester 2021. “

Part of the reason builders focus on more expensive projects is the high costs they continue to incur in their work. While lumber prices have fallen from their peak earlier this year, the cost of other building materials and labor remains particularly high. As a result, construction companies need to focus on the projects that are most likely to generate a greater return on their investment.

Meanwhile, estimated the country is struggling with a shortage of some 5.2 million new homes due to years of under construction. As long as this backlog persists, buyers will face significant competition for homes, driving up prices and potentially excluding many Americans from the housing market altogether.

What they say : “Although the gap between housing starts and permits has narrowed recently, permits are still significantly higher, suggesting more house construction in the future,” wrote Robet Kavcic, senior economist at BMO Capital Markets, in a research note.

“Builders continue to struggle with constraints on the supply side, including a shortage of skilled labor, materials and land, all headwinds to accelerate the pace of new home construction that is needed. to alleviate supply shortages in the current housing market, ”said Odeta Kushi, deputy chief economist at title insurer First American Financial Services FAF,
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