ConDig (17-Apr-18). Construction of new homes in the US shot up 5% to hit a near 11-year high in May as single-family and multifamily sector starts jumped higher, but building permits fell, according to latest figures from the US Department of Housing and Urban Development and the Commerce Department.
Housing starts surged to 1.35 million units last month and was the highest level since July 2007. Starts in the Midwest jumped 62.2% to their highest level since September 2006, offsetting declines in the Northeast, South and Midwest regions.
Despite the rebound in starts, building permits — which are a sign of future construction activity — dropped 4.6% to 1.3 million units in May. Single-family permits dipped 2.2% to 844,000 while multifamily permits tumbled 8.7% to 457,000.
The drop in permits comes as homebuilders face increasing labor and material costs — driven primarily by the surge in lumber prices.
Lumber prices have jumped more than 30% this year to reach their highest level on record in the wake of US duties on imports from Canada, which have squeezed supplies and boosted home-construction costs.
“Ongoing job creation, positive demographics and tight existing home inventory should spur more single-family production in the months ahead,” said National Association of Home Builders (NAHB) chief economist Robert Dietz.
“However, the softening of single-family permits is consistent with our reports showing that builders are concerned over mounting construction costs, including the highly elevated prices of softwood lumber.”
A robust job market and historically low mortgage rates have helped underpin demand for homes in the US, with single-family and multifamily production for the year-to-date 9.8% and 13.6% higher, respectively, compared with the year-ago period.
Despite a drop in May, permits are still running 8.9% higher for the year-to-date.
“We should see builders continue to increase production to meet growing consumer demand even as they grapple with stubborn supply-side constraints, particularly rising lumber costs,” said NAHB chairman Randy Noel.
It comes as US homebuilder confidence unexpectedly dropped in June in the wake of higher lumber costs following the roll out of tariffs on Canadian imports.
The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) fell two points to 68 in June from, its lowest level in two months, compared with expectations for the index to remain unchanged at 70.