Homebuilding hits 9-month high in December

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Homebuilding hits 9-month high in December

Residential single family homes constructed by KB Home are shown as being built in the Valley Center, California community of June 3, 2021, U.S. REUTERS Mike Blake

WASHINGTON, Jan 19, Reuters -- U.S. homebuilding increased to a nine-month high in December due to a surge in multi-family housing projects, but soaring prices for materials came after the government doubled duties on imported Canadian softwood lumber, which could hamper activity later this year.

The Commerce Department report showed that housing construction backlog surged to a record high last month, underscoring the challenges builders are facing from supply strains, including labor shortages. Completions slowed as well. The rising mortgage rates could restrain homebuilding.

The supply problems and labor shortages are slowing them down, according to Jennifer Lee, senior economist at BMO Capital Markets in Toronto. Softwood lumber duties are going to hurt this spring. Housing starts went up by 1.4% to a seasonally adjusted annual rate of 1.702 million units last month, the highest level since March. According to a poll by Reuters, starts fell to a rate of 1.650 million units.

The multi-family housing segment accounted for the rise in homebuilding last month, with starts for buildings with five units or more surging 13.7% to a rate of 524,000 units. There is a strong demand for rental housing.

Single- family housing starts, which account for the largest share of the housing market, dropped by 2.3% to a rate of 1.172 million units last month. Single-family homebuilding soared in the Northeast and Midwest, likely boosted by unseasonably mild temperatures. December 2021 was the warmest December on record, according to the National Centers for Environmental Information.

The densely populated South, where the bulk of homebuilding occurs, reported an 8.2% decrease in single-family starts. In the West, homebuilding fell.

In 2021, there were 1.595 million housing starts, up 15.6% from 2020. The outlook for home building this year is uncertain. The United States increased the duties on imported Canadian softwood lumber to 17.9% from 9% in November after a review of its anti-dumping and countervailing duty orders.

The aggregate cost of residential construction materials has gone up nearly 19% since December 2021, according to the National Association of Homebuilders on Tuesday. The NAHB said higher material costs and shortages were adding weeks to typical single-family home construction times. The latest producer price data shows that softwood lumber prices for framing increased by 24.4% in December after rising 6.9% in November. Lumber futures have surged.

Stocks on Wall Street were lower. The dollar fell against a basket of currencies. The backlog of houses authorized for construction, but not yet started, went up 1.1% to a rate of 270,000 last month, the highest on record. Permits for future homebuilding increased by 9.1% to 1.873 million units in December, an 11 month high. They increased their speed by 17.2% in 2021.

Permits are running ahead of starts, which should underpin homebuilding in the coming months. Permits for buildings with five units or more soared by 19.9% to a rate of 675,000 units. Single-family building permits rose by 2.0% to 1.128 million units, a rate of 1.128 million units.

A shortage of previously owned homes is supporting homebuilding, but rising mortgage rates, higher house prices and rising mortgage rates could make home buying less affordable.

Housing completions fell by 8.7% to 1.295 million units, reflecting a 34.3% plunge in multi-family housing units. Single-family home completions increased by 3.9% to 990,000 units, an increase of 3.9%.

The inventory of single-family housing under construction went up by 2.3% to 769,000 units last month, the highest since February 2007. Multi-family homes under construction increased by 2.4% to a rate of 737,000 units.

As long as supply chains are stressed, builders will struggle to complete projects, limiting growth and slowing sales, said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.

The 30 year fixed-rate mortgage averaged 3.45% during the week ending January 13, the highest since March 2020 and up from 3.22% in the previous week, according to data from mortgage finance agency Freddie Mac.

An analysis by another mortgage finance agency, Fannie Mae on Wednesday showed that housing affordability was increasingly becoming constrained, which could limit home sales this year.

According to Doug Duncan, chief economist at Fannie Mae in Washington, we observe an early indication of this in recent increases in debt-to-income measures associated with incoming mortgage originations.

The expectations that mortgage rates will keep rising are drawing buyers into the market.

Application for loans to buy a home increased 8% last week, according to a report from the Mortgage Bankers Association on Wednesday. Christopher Rupkey, chief economist at FWDBONDS in New York, said this year is likely to be sideways at best for residential home builders. It will be interesting to see if higher mortgage rates will cool the housing bubble, because lack of new supply will likely remain the dominant trend for another year.