Economic research

Home starts jump 22.3% from 2021 levels

February 2022 New residential construction

What happened:

New residential construction is under pressure from inflation, labor shortages and rising interest rates. The trends are also reflected in stumbling homebuilder sentiment, with the NAHB market index down for three consecutive months, due to lower buyer traffic and affordability concerns. Additionally, with Russia’s war in Ukraine disrupting supply chains and rising import duties on Canadian lumber, lumber prices soared to over $1,300 per thousand. board feet in February, not far from the May 2021 record. The cost of new homes continues to rise, with builders passing on higher spending to consumers, who are seeing prices jump by thousands of dollars week to week. ‘other.

Permits were down 1.9% from January, due to lower single- and multi-family activity, but were 7.7% above year-ago levels. Meanwhile, housing starts rose 6.8% from the previous month, to 1.77 million annualized units, and were up 22.3% from a year ago, builders having inaugurated more single-family properties as well as those with five or more units. Homes completed, ready for sale, were up 5.9% from the previous month and were 2.8% lower than March 2020. Importantly, the pace of single-family home completions increased by 12.1% compared to the previous month, on double-digit gains in the Northeast, Midwest and South.

New construction - Completions: historical table

What does that mean:

Real estate market fundamentals have been impacted during the COVID pandemic, with the inventory of houses for sale reach new lows. Players in the US real estate market are grappling with a massive shortage of new homes. We started 2020, just before the pandemic, with a shortage of 3.8 million new single-family homes. Two years later, in January 2022, we faced a shortage of 5.8 million new single-family homes. As a large wave of demographics seek the benefits of home ownership in a tight market, housing affordability is in decline. Home prices and rents have risen in tandem, by double digits, adding to the pressures felt by American households struggling with rising bills for food, utilities, gasoline, cars, health services and daycares. The need for new construction remains a pressing imperative, as does the Federal Reserve monetary policy moves to reduce demand.


George RatiuGeorge Ratiu