US housing starts grew less than expected in May as construction bottlenecks stifled raging demand

home construction
  • US housing starts grew 3.6% in May to an annualized rate of 1.57 million, the Census Bureau said.
  • Economists expected a 3.9% jump. The April reading was also revised lower to indicate starts dropped 12.1% that month.
  • Builders are struggling to shore up home supply as demand remains elevated and construction costs soar.
  • See more stories on Insider’s business page.

New home construction bounced back in May, but still missed economist forecasts as supply-chain issues kept contractors from servicing unprecedented demand.

Housing starts rose 3.6% to an annualized rate of 1.57 million in May, the Census Bureau said Wednesday. Economists surveyed by Bloomberg held a median estimate for a 3.9% jump.

April’s rate was revised lower to 1.52 million, implying a 12.1% slide through the month.

Building permits – which serve as a more forward-looking indicator of residential construction – fell 3% to an annualized rate of 1.68 million. That’s the lowest level since October.

Separately, the number of one-family homes authorized but not yet started climbed to 142,000 last month, the highest since 2006. The gauge is often used as a measure of backlogs in the nation’s housing market.

The May report signals that, while home construction is picking up, the rebound is far from alleviating pressure in the red-hot housing market. Massive demand throughout the pandemic saw sales rates skyrocket and drag inventories to record lows. The imbalance between supply and demand has since led prices to surge and exacerbate affordability risks already lingering throughout the market.

Starts will fail to break out and instead waver near current levels for the rest of 2021, Nancy Vanden Houten, lead economist at Oxford Economics, said.

“Strong demand, a need for inventory, and homebuilder optimism will keep a floor under activity, but builders continue to face supply constraints that may hamper or at least postpone construction,” she added.

Builders have tried to shore up home supply, but their efforts have recently run up against severe bottlenecks. Lumber prices exploded higher in April and crept higher still in May before retracing only some of the rally. The surge helped boost the producer price index for construction materials another 4.6% higher last month after climbing 5.2% in April.

Even the lots where homes are built are in short supply. The New Home Lot Supply Index slid 10% to a record low in the first quarter of the year, housing analytics firm Zonda said in May.

For now, contractors are shifting the higher costs to buyers. Home prices in the US spiked 13.2% year-over-year in March, according to the S&P CoreLogic Case-Shiller Home Price Index. The May reading exceeded the 12.5% estimate and marked the largest one-year jump since December 2005.

Read the original article on Business Insider

The home-construction boom sputtered out in April as prices surged higher

Home construction
A red-hot real-estate market has kickstarted new home construction, but builders face a shortage of lumber.

  • US housing starts fell 9.5% in April, erasing much of the March surge that looked likely to provide much-needed supply.
  • The lack of adequate inventory has driven up home prices in recent months as demand remains red hot.
  • Soaring lumber prices and supply bottlenecks likely weighed on construction, one economist said.
  • See more stories on Insider’s business page.

Potential buyers will need to wait a little while longer for the housing market to cool off.

US housing starts slid 9.5% in April to an annualized rate of 1.57 million units, the Census Bureau said Tuesday. That’s well below the median estimate of a 1.7 million pace from economists surveyed by Bloomberg. March’s huge upswing was revised slightly lower to a rate of 1.73 million.

The reading erases much of the sharp improvement seen through March and suggests contractors’ efforts to shore up supply are hitting snags. Lumber prices skyrocketed through April as shortages slammed the construction sector. While the housing market remains robust, the Tuesday report signals inventory pressures won’t be alleviated so easily.

“Strong demand, a need for inventory, and homebuilder optimism will support housing starts over the rest of 2021, while record-high lumber prices and supply chain bottlenecks may act as headwinds,” Nancy Vanden Houten, lead US economist at Oxford Economics, said in a note. The firm expects starts to average 1.6 million through the year, which would mark the fastest pace of home construction since 2006.

In more encouraging data, building permits rose 0.3% through April. Permits are more forward-looking than starts, suggesting contractors expect to ramp up construction through the year. There’s also a growing backlog of permitted homes that haven’t been started yet. The recent decline in lumber prices and easing of some supply bottlenecks could pull forward that construction, Vanden Houten said.

Housing starts will be the indicator to watch as the red-hot market charges into the summer. Sales of existing and previously owned homes, while still elevated, have dropped off in recent months as massive demand runs up against a nationwide supply shortage.

That imbalance has driven prices higher throughout the year. Home-price inflation hit a record-high 12.2% in February, the Federal Housing Finance Agency said on April 27. The lingering shortage and lack of an immediate supply boost likely kept price growth strong in March and April.

The shortage and months-long price surge led some to worry that the market is repeating the boom-and-bust cycle of the late 2000s. Experts told Insider last month that, while prices will likely climb further, the current rally has more to do with a lack of inventory than the risky lending that fueled the 2008 crash.

The Federal Reserve backed the outlook following its April policy meeting. The central bank is “carefully” monitoring the housing market but doesn’t see the “kind of financial stability concerns” that emerged in the late 2000s, Fed Chair Jerome Powell said in an April 28 press conference.

“My hope would be that over time, housing builders can react to this demand and come up with more supply, and workers will come back to work in that industry,” he added.

Read the original article on Business Insider

Here’s how fast homebuilding is catching up to the record-low number of houses for sale

UBS STARTS
Source: UBS.

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

“We may have overestimated the immediate storm-rebound by a little, and so expected more rebound to come in starts in April,” UBS economists led by Samuel Coffin said in a note. “But with permits on target in March, we continue to see the underlying trend in single-family activity at about a 1.2 million unit annual rate.”

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider

Dow, S&P 500 close at records amid strong global economic data

Trader NYSE

The Dow Jones industrial average and S&P 500 closed at record highs on Friday as investors remain optimistic about the global recovery amid strong economic data.

China said its economy grew 18% in the first quarter of 2021, with the nation saw retail sales soar 34.2% in March. In the US, housing starts surged 19.4% to a a 15-year high on Friday after jobless claims tumbled to a pandemic-era low the prior day.

Here’s where US indexes stood at the 4 p.m. ET close on Friday:

Read more: Bank of America shares 6 ETFs to capitalize on what could be the greatest capital-spending boom in 4 decades as Biden’s infrastructure policy rolls out

Morgan Stanley concluded a blockbuster week for bank earnings, beating estimates in every major category – although the strong report was overshadowed by a $911 million loss linked to the Archegos Capital implosion.

Across Wall Street, Citigroup posted record profit, Goldman Sachs beat revenue and profit expectations on strong trading and investment-banking revenue, and JPMorgan and Wells Fargo turning in profit that surpassed Wall Street’s targets.

In a different realm of markets, Dogecoin went on a record-shattering rally this week. Elon Musk’s favorite meme-token spiked more than 100% on Friday to record highs.

West Texas Intermediate crude fell as much as 1%, to $62.83 per barrel. Brent crude, oil’s international benchmark, slid 0.8%, to $66.44 per barrel, at intraday lows.

Gold climbed as much as 1.1%, to $1,783.85 per ounce.

Read the original article on Business Insider

The hottest month ever for US housing could be just the start of a more sustainable rally

home housing residential construction worker builder
Construction workers are pictured building a new home in Vienna, Virginia, outside of Washington, October 20, 2014.

  • March saw home sales accelerate further and price growth hit its fastest rate since the mid-2000s.
  • The rally isn’t sustainable, but a rebound in building will allow for months of healthy growth, Redfin said.
  • Millennial homeownership is on the rise and should spur the construction of millions of homes per year.
  • See more stories on Insider’s business page.

The US housing boom wasn’t built to last.

What began as a hefty uptick in home purchases evolved into an all-out buying spree in a matter of months. Americans taking advantage of low borrowing costs and looking to flee cities for suburbs snapped up homes at a rate not seen since the mid-2000s housing bubble.

It didn’t take long for strains to crop up. Homebuilders struggled to keep up with demand, and lumber shortages cut into construction. The national supply of existing homes fell to a record low in January and stayed there in February, even as the pace of sales slowed. Inventories of US single-family homes now sit 40% lower than at the start of the pandemic, while apartment inventory is down 10%, according to UBS data.

UBS EVIDENCE LAB
Source: UBS Evidence Lab.

The supply-demand imbalance was most evident in home prices. The national median home-sale price grew at the fastest year-over-year rate on record in March, according to Redfin data published Thursday, which called it the hottest month ever in the US housing market. This extraordinary price inflation now risks making the housing market far less accessible at a time of intense economic struggle.

Potential homebuyers need not worry, Taylor Marr, lead economist at Redfin, said. After the housing’s hottest month in history, stronger homebuilding activity and attractive mortgage rates should help the market settle into a slower and more sustainable expansion, he added.

“Despite the intense competition and high prices we face, I still see more big gains to be made in home equity,” Marr said in the Thursday report. “Waiting for the market to cool could take many months, and at that point we may have missed out on the opportunity to benefit from these super-low mortgage rates and price gains in the year ahead.”

Solving the decade-old problems plaguing the housing market

One factor that should ease pressures on the market is a sharp uptick in homebuilding. Housing starts leaped nearly 20% last month to their highest level since 2006, according to Census Bureau data published Friday. Permits for building residential units also swung higher, albeit at a slower pace. The readings follow February declines linked to harsh winter storms.

Contractors are also growing increasingly confident in market conditions. The National Association of Home Builders and Wells Fargo sentiment index edged higher in an early April reading, boosted mainly by new traffic from prospective buyers.

Still, some lockdown measures are still in place, and lumber prices remain elevated.

“While states have mostly lifted restrictions, demand surges in residential construction and supply chain disruptions have made certain materials scarce, creating long lead times and cost overruns, putting additional pressure on contractors trying to service their clients, pay their employees and still have something left for themselves,” Ben Johnston, chief operating officer of lending firm Kapitus, said.

Firms also have to make up for years of slower building activity. Home construction remained relatively weak for years after the Great Recession as damage to the market left firms desperate to prop up prices.

Those efforts have since come back to haunt contractors. The housing market is about 3.8 million units short of current demand, Sam Khater, chief economist at Freddie Mac, told The Wall Street Journal. That hole would be much smaller had building kept up with demand before the pandemic struck, he said.

“This is what you get when you underbuild for 10 years,” he added.

Transitioning to a cooler, but healthier, housing market

A rebound in supply won’t reverse the market’s expansionary streak. Buying activity will remain robust as the Federal Reserve holds interest rates near zero and the economy rebounds from the coronavirus recession, Redfin’s Marr said.

“Fundamentals like low mortgage rates and high demand for housing are fueling the record-high price gains, so I don’t believe that homes are overvalued,” he said.

Price growth, however, will slow. Supply should balance out with demand in roughly six months as building picks up, Jefferies analysts led by Philip Ng said in an April 8 note.

Lumber prices should also peak over that period. The futures market currently sees the commodity plunging 26% into early 2022. That should cut down on premiums paid for new homes, according to Jefferies.

Contractors also have plenty of warning for a coming wave of fresh demand. Millennials’ homeownership rate shot higher during the pandemic, particularly among those aged 30 to 34. The population of people aged 25 to 34 is about 9% larger than that aged 35 to 44, according to Jefferies. That bigger group’s continued foray into homeownership should drive the construction of 1.7 million to 2 million new homes per year through 2024, the analysts said.

“Underbuilding has left the inventory of new and existing homes for sale at all-time lows, making the only solution to satisfy growing demand from the Millennial cohort to be new residential construction,” they added.

All signs are pointing to a surge of new building. Such a rebound is heavily reliant on lumber supply chains and, as with the broad economy, the path of the coronavirus. If growth cools as Jefferies, Redfin, and current data suggest, homeowners and prospective buyers might both come out winners.

Read the original article on Business Insider

Housing starts soar to 15-year high as builders sprint to fill market shortage

home house construction
Workers are shown building luxury single family homes in Carlsbad, California,

  • Housing starts surged 19.4% in March to their highest level since 2006, the Census Bureau said.
  • The rebound was fueled by a massive supply shortage and a return to work after harsh winter storms.
  • The supply-demand imbalance sent prices soaring during the pandemic and cut into home affordability.
  • See more stories on Insider’s business page.

Insider has been warning of a potential inventory crisis in the housing market since last summer. It’s just gotten worse since then, with a record low number of homes for sale.

Builders are racing to catch up.

New residential construction surged more than anticipated in March as builders rushed to address the massive supply-demand imbalance in the housing market.

Home starts leaped to a seasonally adjusted annual rate of 1.74 million units last month, the Census Bureau said Friday. That’s up 19.4% from the revised February reading. Economists surveyed by Bloomberg expected starts to rise to a rate of 1.61 million. The reading places housing starts at their highest level since 2006 and marks the largest month-over-month gain since 1990.

The strong rebound was partially driven by a return to work after harsh winter storms hampered construction in February. Permits for residential construction also gained in March, though at a more modest rate.

The upswing in home construction comes as the market sits mired in a historic supply shortage. Low mortgage rates spurred a buying spree throughout the pandemic, as did a mass exodus from cities to suburbs. The pace of home sales cooled somewhat in February, but inventory remains at a record-low 1.03 million, according to the National Association of Realtors. At the current rate of purchases, that supply will only last for two months.

The shortage has shown up in home prices, which have shot higher in recent months. Prices gained 10.4% in February from the year-ago period, marking the largest one-year bounce since 2006. Prices also rose 1.2% month-over-month in February, signaling that, while the sales rate has slowed, costs are still climbing. The loftier prices stand to price potential homebuyers out of the market and make housing less accessible overall.

Still, filling the hole in the housing market isn’t as simple as going out and building more. The pandemic’s fallout disrupted all kinds of supply chains, including those critical for home construction. A widespread lumber shortage is estimated to be adding about $24,000 to the price of new homes, according to the National Association of Home Builders.

A decades-long slowdown in construction activity also contributed to the supply strains. The financial crisis and its damage to the US housing market led contractors to curb some building activity to prop up demand. Those actions are now coming back to haunt the housing market, which is estimated to be short some 4 million units, The Wall Street Journal reported, citing Freddie Mac data.

“We should have almost four million more housing units if we had kept up with demand the last few years,” Sam Khater, chief economist at Freddie Mac, told The Journal. “This is what you get when you underbuild for 10 years.”

Data suggests contractors are up for addressing the issue. Apart from the Friday housing-starts report, the National Association of Home Builders’ sentiment gauge edged higher in a preliminary April reading. A component measuring expected traffic of potential buyers rose to its highest level since November, signaling contractors are expecting steady demand throughout the building boom.

Read the original article on Business Insider