Single-family home starts and completions fell in October as homebuilders faced headwinds. However, there's a silver lining for homebuyers.
If there's anything that could make the housing market more friendly for homebuyers, it's a wave of new inventory.
But based on October residential construction data, homebuilders are struggling to create that wave.
According to the U.S. Census Bureau, the seasonally adjusted annual rate of single-family homes started fell 1.04 million in October, down from 1.08 million the month prior. Last year, homebuilders were starting homes at a seasonally-adjusted rate of over 1.16 million per year.
The rate of single-family home completions fell to 929,000 per year after remaining level at 945,000 for the previous three months.
There is a silver lining, however. The annual rate of building permits issued increased substantially in October for the first since March, clearing the way for more starts and completions as supply chain and labor issues continue untangle. Single-family home building permits were issued at a rate of 1.07 million per year in October, the highest rate since May.
Record-low inventory paired with exceptionally high demand throughout 2021 has tilted the housing market heavily in favor of sellers. At it's peak in April, competition between buyers led to bidding wars on nearly 75% of homes. This drove up sales prices and sidelined first-time and low-income buyers that brought less cash to the table.
With supply-starved buyers standing by, home builders have been trying to bring new inventory online. However, they're facing heavy headwinds from lingering pandemic issues. Mangled supply chains are causing delays and price inflation on building materials. Builders also facing a labor shortage.
Both of these issues will gradually improve as the economy continues to recover. However, the greatest obstacle builders are facing is not so easily solved: finding lots to build on. In October, 76 percent of home builders reported the supply of lots was low to very low — an all time record since the survey began in the 1990’s. The previous record was 65 percent in 2018.
Despite these challenges, builders are starting homes in 2021 at rates not seen since the mid-2000's. Following the 2008 housing market crash, homebuilding fell to all-time lows and led to a decade of underbuilding. At it's lowest point in 2009, homebuilders were starting houses at a rate of 514,000 per year.
And homebuilders are not the only source of housing inventory. Nearly two years into the pandemic, sellers are finally feeling more comfortable about listing their homes. According to Realtor.com, 26% of homeowners surveyed this fall plan to sell within the next year, up substantially from 10% in the spring.
With more new and existing homes coming online, it's unlikely inventory will fall as low as it did in 2021. Additionally, rising interest rates should put a damper on demand. With a higher mortgage rate, homebuyers may not be able to afford as much house, but they will likely have more selection and less competition in 2022.
