New construction of single-family homes fell sharply and unexpectedly in January as homebuilders struggled with huge costs increases, data from the Department of Commerce showed Thursday.
Single-family home starts dropped 5.6 percent in January compared with the prior month, exasperating a shortage of houses that has sent home prices soaring. U.S. homebuilders started new single-family projects at a seasonally adjusted, annualized rate of 1.116 million units, 2.4 percent below the rate of construction a year ago.
Multifamily construction declined as well, falling to an annual rate of 510,000, 2.1 percent below December’s rate. Construction of apartment or condo buildings with five units or more is up 8.7 percent from a year ago when urban construction was still struggling under the weight of the pandemic.
Homebuilders have been hit hard by inflation. Construction machinery and equipment prices are up 11.4 percent compared with a year ago, according to the Department of Labor’s Producer Price Index. Softwood lumber prices are up 20.1 percent over the past 12 months. The index that tracks nails is up a striking 44 percent. Plumbing fixtures are up 7.4 percent. Bolts, nuts, screws, and rivets are up 16.5 percent. Air conditioning is up 18.7 percent.
Labor costs are up sharply as well, with many builders saying they are having trouble finding workers at nearly every skill level. The average non-supervisory wage in construction is up 5.8 percent compared with a year ago.
Homebuilders have said they are delaying projects because of shortages. This showed up in January data in the form of a big increase in the number of single-family housing units under construction but not completed. These rose to an annualized rate of 785,000 in January, up 1.9 percent from December and 26.8 percent from a year ago. This is the highest level since December 2006, a period many regard as close to the peak of the housing bubble.
There was also a big jump in the number of houses authorized but not started. These rose 5.6 percent compared with December. They are up 32.5 percent compared with a year ago. These are at all-time highs in data that goes back to 2000.
“Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances,” said NAHB Chairman Jerry Konter, a builder from Savannah, Georgia. “These delivery delays are raising construction costs and pricing prospective buyers out of the market.”
Permiting activity rose in January, likely a sign that builders think that demand will stay high even though interest rates are rising. The average rate on a 30-year fixed rate mortgage was 3.69 percent as of February 10, up from 3.11 percent at the end of the year. Rates have been rising in anticipation of the Fed raising its target rate in an effort to contain inflation. Single-family permits jumped 6.8 percent in January but are down five percent compared with a year ago.