Builders pull out as more buyers are shut out of the market

There are several signs in the market for newly built homes that point to a potential slowdown for home builders across the country.

Data released Tuesday added to the evidence that builders are pulling out.

Single-family home starts continued to rise in June, with many homes already sold. But building permits, an indicator of future construction, fell more than expected last month to their lowest since August and were about 100,000 units below the six-month average, according to the US Census Bureau.

“The single-family home market in particular is in desperate need of more new homes, especially in the lower end where first-time homebuyers need price relief and more sourcing choices, but we also know that it is becoming more and more difficult to deliver a builder. outlook at desired price levels, ”said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Elsewhere in the market, mortgage applications for the purchase of a newly constructed home fell nearly 24% in June year-over-year, according to the Mortgage Bankers Association. This is the third consecutive month of decline.

“Home builders are facing stronger headwinds lately as sharp increases in the prices of major building materials, rising regulatory costs and labor shortages impact their ability to increase production. This has dampened new home sales and accelerated home price growth, ”said Joel Kan, an MBA economist.

The average loan amount also hit a new record high at $ 392,370.

“In addition to the price increases, we are also seeing less purchase transactions in the lower price points, as more of these potential buyers are excluded from the market, putting upward pressure on loan balances.” Kan added.

The latest developments come after the coronavirus pandemic produced the hottest year for housing demand and home construction in more than a decade.

Homebuilder sentiment, while still elevated, fell in July, with builders citing continued pressure on construction costs. Lumber prices, which skyrocketed during the pandemic and hit an all-time high just a few months ago, have fallen dramatically. So far, however, these savings have not passed on to consumers or builders. The prices of other materials are also still on the rise.

“The recent weakening of permits for single and multi-family homes is due to rising material costs, which have pushed new home prices up since late last year,” said Robert Dietz, chief economist of the National Association of Home Builders. “It’s a challenge for a housing market that needs additional inventory. “

Manufacturers are also hampered by supply chain and labor issues.

“Reports of months-long delays in the delivery of windows, heaters, refrigerators and other items have surfaced across the country, delaying delivery of homes and forcing builders to limit activity. , and many builders continue to report a shortage of available workers as a separate challenge, ”said Matthew Speakman, economist at Zillow.

The median price of a newly built home in May is up 18% from May 2020, according to the census. Prices for existing homes are also up double digits from a year ago. Although mortgage rates have fallen significantly in recent weeks, that is not enough to offset these large price gains.