Despite a national housing shortage, data from the U.S. Census and The Department of Housing and Urban Development (HUD) found that new residential construction declined in June.
The seasonally-adjusted number of building permits issued for new construction totaled 1,685,000, an annual increase of 1.4% compared to June 2021. June 2022’s numbers are a monthly 1.4% decline from May, but there is a difference in new permit growth depending on the kind of housing.
The primary driver of shrinking building permits is single-family homes, which declined by 8.0% from May to June and 11.4% annually. However, residential permits for multifamily buildings, defined as properties with five or more units, increased by 13.1% from May to June and 27.8% year-over-year.
There were 1,365,000 privately‐owned housing completions in June, a 4.6% decline from May’s revised estimate of 1,431,000 and a 4.6% increase from the 1,305,000 housing completions in June 2021.
Housing starts also fell 2% month-over-month, from 1,591,000 in May to 1,559,000 in June, and an additional 5.1% from June 2021 levels of 1,664,000. Single-family buildings were also responsible for the annual decline in residential construction starts, declining 15.7% over the year.
Single-family Construction Declines Along with Homebuilder Sentiment
The National Association of Homebuilders (NAHB)/Wells Fargo Housing Market Index found that homebuilder sentiment in the current single-family housing market fell substantially from June to July. On a monthly basis, homebuilder sentiment dropped 12 points to 55. For comparison’s sake, homebuilder sentiment was 80 in July 2021 and a record-high 90 in November 2020.
While anything above 50 on the housing market index is considered a positive outlook, the steep monthly drop in confidence is of note. The only time there was a more considerable monthly drop in confidence was April 2020, the first full month of the Covid Pandemic. Robert Dietz, NAHB’s chief economist, explained the main reason behind the decline in homebuilder confidence.
“Affordability is the greatest challenge facing the housing market,” Dietz explained. “Significant segments of the home buying population are priced out of the market.”
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Jerry Konter, a Georgia-based homebuilder who serves as NAHB chairman, explained that affordability is also a problem for homebuilders. For example, lumber prices increased 13.5% from June 13 to July 18
“Production bottlenecks, rising home-building costs, and high inflation are causing many builders to halt construction because the cost of land, construction, and financing exceeds the market value of the home,” Konter said.
The United States still has a severe housing shortage that has no end in sight. The only good news for prospective homebuyers is that sales prices are likely to start leveling off soon as overall homebuyer sentiment declines.
