US New Home Starts Trend Lower And Permits Enter Correction Territory

The US housing boom is experiencing a few hiccups but it’s not due to a lack of demand. The US Census Bureau released October housing starts and new building permit data. Housing starts slipped lower but remain historically high. Permits, which show future building intent, still remain elevated compared to last year. The number is lower than earlier this year though, technically entering “correction” territory.

US Housing Starts Are Trending Lower But Remain Historically High

US housing starts continue to trend lower but they are an improvement over pre-2020 data. Housing starts fell to a seasonally adjusted annual rate (SAAR) of 1.52 million in October. This is down 0.7% from a month before and 0.4% higher than the same month last year. Even with the monthly decline, builders are starting construction on more housing than they were last year. 

Zooming out we can see the SAAR of starts has slowed down quite a bit from its 12-month peak. Last month’s housing starts are 8.3% lower than the annual peak hit in December 2020. Though when compared to the average October SAAR of starts over the past 5 years, it was 15.1% higher. Lower than it was at the peak boom but still pretty high in the big picture.

US Housing Starts

The seasonally adjusted annual rate of new housing starts across the United States.

Source: US Census Bureau; HUD; Better Dwelling.

US New Home Permits Increased 4% Last Month

Permits to build new homes, an indicator of future building intent, are up. Permits hit a SAAR of 1.65 million in October, up 4.0% from the month before. It works out to a 3.4% increase compared to the same month last year. Despite falling starts, homebuilders are showing some signs of stronger intent to build.

US New Home Permits

The seasonally adjusted annual rate of new permits to build homes.

Source: US Census Bureau; HUD; Better Dwelling.

Emphasis on “some” because the intent is significantly below the peak earlier in the year. Last month’s SAAR of permits is down 12.4% from the recent peak in January. Once again, this is elevated compared to the past few years. But it can drag supply in the not-so-distant future, which can lead to a tighter market.

The trend of falling supply from builders while home prices are soaring might seem odd at first. After all, if there’s enough demand to push prices higher, it means there are buyers. Two big issues here are inflation and a shortage of building supplies.

Due to rising and unstable material costs, US homebuilders have delayed many projects. It’s difficult to build homes when you have no idea what your costs will be in a few months. A lumber executive even weighed in recently, telling buyers to wait until demand eases. The circumstances aren’t unique to America but resemble the market in Canada as well.

That’s if you can find materials. The sudden building boom combined with health restrictions has throttled materials and labor. Not building many homes for a decade and then helicoptering money isn’t an ideal solution. Building homes and securing materials don’t just scale up and down on demand. These kinds of conditions actually tend to increase the odds of a “boom and bust” environment.