Single-family housing starts ran at a one million+ annualized rate again in June, data out Tuesday showed.
That’s good news in at least one respect. The Biden administration is now keen to help builders tackle what’s been variously billed as an acute shortage of homes. Demand soared in the months following the pandemic lockdowns last year, as record-low mortgage rates, the proliferation of work-from-home arrangements and a flight to the suburbs all conspired to lure buyers.
In fairly short order, robust demand ran up against constrained supply. The rest is history. Literally. Housing prices rose the most in recorded history in April on the Case-Shiller national gauge (figure below). A fresh read is due next week.
The Fed took much of the blame for the surge in prices, both among serious and unserious observers. Clearly, there’s some truth to the criticism. Indeed, an internal debate at the Fed now centers around whether to taper MBS first (or more aggressively) when the Committee begins to pare monthly asset purchases.
But, contrary to what you might be inclined to believe if your news diet consists entirely of tweets from attention-seekers and the blogs they follow, it’s not all the Fed’s fault.
“The first step is to really get everybody around the table and find out what’s happening, where is the system broken, and what can industry do better and differently,” Commerce Secretary Gina Raimondo said, of the White House’s chat with leaders from the homebuilding industry. “Some issues relate to logistics, so if there’s anything that the government can do to help with ports and other modes of transportation, we want to know about that.”
As it turns out, builders don’t generally carry around rolled up, old west-style wanted posters of Jerome Powell. As Bloomberg noted, “they cite high materials prices, scarce supplies and a dearth of skilled workers as ongoing challenges in the race to complete new homes.”
“This meeting was the culmination of a year-long effort where NAHB has been in the forefront of educating the public and policymakers about how rising lumber and building material prices are harming home builders, home buyers and the economic recovery,” the NAHB said late last week, adding that with “sawmill output continu[ing] to lag… we may find ourselves in the same situation as last November, when lumber prices posted a similar steep reduction only to reverse course and move to record-high levels.” That is unless somebody does something to increase supply in order to meet demand.
Obviously, some of this is policy-related — demand is buoyant in part because of the Fed and many blame fiscal policy for labor shortages. But, as ever, I’d encourage readers to dismiss simplistic “blame the Fed” narratives. There is a supply shortage. If more people want something (homes, candy bars, widgets or anything else) than suppliers can currently provide, that’s a shortage. Period. It’s not a debate. It’s a definitional matter. Either a shortage means what we’ve always said it means, or it doesn’t. We can argue about what caused it. In this case the Fed clearly played a role. But we can’t claim a shortage isn’t a shortage unless we want to change the dictionary.
With all of that in mind, the pace of single-family starts rose to 1.16 million in June. The eleven-month streak above a one million clip is the longest in 14 years (figure below).
Overall, starts rose to a 1.643 million pace, up 6.3% from May and better than estimates.
Single-family completions, however, dropped to 902,000. And permits missed, printing 1.598 million (figure below), down from 1.683 million in May, well below the 1.696 million pace the market wanted and the lowest since October.
That may suggest construction is poised to decelerate in the months ahead, although again, it’s difficult to get a handle on the situation. Single-family backlogs rose to the highest since October of 2006 last month, for example.
Earlier this week, the NAHB said homebuilder sentiment fell to the lowest in almost a year, even as “strong buyer demand helped to offset supply-side challenges.”
In the press release, Chairman Chuck Fowke noted that “builders continue to grapple with elevated material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500%” from January of 2020.
Fowke said he was “grateful that the White House heeded our urgent plea to… seek solutions to end production bottlenecks that have harmed housing affordability.”
Now, does anyone have any extra oriented strand board sitting around that they’re not using? It’s a seller’s market.