New home construction fell in February as the rising costs of building materials, especially lumber, weighed on builders.
Data from the U.S. Department of Housing and Urban Development and Census Bureau published Wednesday shows that single-family and multifamily housing starts fell by 10.3% to a seasonally adjusted rate of 1.42 million units that month. Single-family home starts declined by 8.5% last month to a seasonally adjusted annual rate of 1.04 million, while multifamily starts dropped 15% to a pace of 381,000, the data shows.
The slump in new home construction comes at the worst possible time, as demand for new homes remains stronger than ever, said Chuck Fowke, chairman of the National Association of Home Builders.
“Despite strength in buyer traffic and lack of existing inventory, builders are slowing some production of single-family homes as lumber and other material costs, along with interest rates continue to rise,” Fowke said. “Shortages of lumber and other building materials, including appliances, are putting future construction expansion at risk.”
NAHB Chief Economist Robert Dietz said that single-family home starts do at least remain 6.4% higher than they were during the first two months of 2020. He said that overall, there has been a 36% gain over the last year in new single-family homes permitted by not started yet. The problem is that many projects have been put on hold due to the cost and availability of building materials, Dietz added.
Dietz also said that single-family home construction is likely to increase in 2021 compared to the previous year, albeit at a slower rate than last year’s gains as housing affordability is being challenged by rising mortgage rates and building costs.
On a regional basis, only the West saw combined single-family and multifamily housing starts increase over the last month, up 17.6% compared to the previous month. In the Northeast, housing starts fell by 39.5%, and in the Midwest by 34.9%. In the South, new starts declined 9.7%, the HUD and Census data revealed. The decline in home building in the South was partly due to the severe winter storms in Texas and some neighboring states that caused work to be put on hold, Dietz said.
Homebuilding is expected to decline further in the coming weeks. Housing permits, which are a gauge of future building activity, fell 10.8% in February to a 1.68 million unit annualized pace. Broken out, single-family permits fell 10% to a 1.14 million unit rate and multifamily permits decreased 12.5%.