New Construction Slumps in July – Value in Resale

new construction

Corken and Company places a high value on our clients understanding the current market. When it comes to building activity for new homes, there was a slump in July. This is likely a reflection of the continued supply constraints that construction firms faced nationwide. U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.53 million in July. This represented a 7% decrease from the June’s upwardly-revised figure, the U.S. Census Bureau reported Wednesday.

Compared with July 2020, housing starts were up 2.5%. However, such year-over-year comparisons are still skewed by the effects of the onset of the COVID-19 pandemic. Permitting for new homes occurred at a seasonally-adjusted annual rate of 1.64 million, up 2.6% from June and 6% from a year ago.

 

What happened:

Housing starts declined for both single-family and multifamily projects. The South was the only region where new construction activity increased overall, with a 2.1% uptick. Meanwhile, in the Northeast, there was a 49% decline in housing starts on a monthly basis. The increase in permitting was driven by an 11% jump in the number of multifamily buildings authorized, as the number of single-family homes that were permitted actually declined on a monthly basis. In addition, there was a high degree of regional variation in building permits. The West alone saw a 13% gain, which is a good sign for the Colorado market. The South saw a 1.9% drop on a monthly basis. There was also a 2.6% increase in the number of approved projects where construction had yet to begin.

 

​​The big picture:

To some extent, the decline in housing starts might be a reflection of construction companies needing to pump the brakes to match the pace of building activity to the availability of supplies and labor. The latest print of the home-builder confidence index from the National Association of Home Builders showed declines in the gauges that measure attitudes toward the state of present sales and foot traffic. But, some analysts weren’t too negative on that news.

“We believe the slowdown in present sales is still more driven by supply constraints as builders have fewer homes to sell after robust demand and/or are intentionally slowing sales to match demand with production capacity,” analysts at investment bank BTIG wrote in a research note.

 

What they’re saying:

 “Although residential construction has stepped back from March’s 15-year high, amid supply issues and elevated material costs, it continues to hold above pre-pandemic levels,” Michael Gregory, deputy chief economist at BMO Capital Markets, wrote in a research note. Builders pulled back on housing starts, wary of overcommitting on final new home prices in the face of volatile costs for land, materials and labor. However, permit applications and completed homes registered gains, a sign that expectations for the next months remain upbeat.

When it comes to the current market it is crucial to stay up to date. From the information above and the current state of the Colorado market, we can see that real estate is still a very worthy investment. If you are looking to build, buy or sell, contact us today!

 

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