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Are Homebuilders Holding Off Construction to Game Rising Prices?

Daily Ticker

New home construction rose less than expected in May. It’s the latest housing data after Monday’s surge in homebuilder confidence was reported.

The Commerce Department said today housing starts rose 6.8 percent to a seasonally adjusted annual rate of 914,000 units versus expectations of 950,000.

Reuters reports this miss likely reflects labor and material constraints. CNBC Real Estate reporter Diana Olick adds to the list a lack of land and a supply chain for homebuilders that wasn't ready for this pick-up in demand.

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But Olick also suggests the holdup in construction may be intentional.

Related: “This Is Not a Normal Housing Market”: Economist Michelle Meyer

“Believe it or not we’re hearing from some builders - self-admittedly - that they are slowing production of new homes because they want to take advantage of these rising home prices,” Olick tells The Daily Ticker in the accompanying interview. “In the last new home sales report we actually saw a huge spike in new home sale prices, and they like that. Of course they want to sell the homes for more money so they’re actually keeping the supplies lean in some cases.”

Lean inventories have been pushing up home prices. According to Olick - home price gains have been "completely driven" by this limited supply, which has been "pushing prices up far too fast."

Related: Housing Recovery Faces Big Risk: Credit Expert

And bigger picture there is the question of if the recovery is real and sustainable. All of the data showing a recovery in housing is arguably built on a foundation including massive Federal Reserve support in the form of monetary stimulus. So what happens if the Fed pulls back, as people are mulling ahead of the FOMC statement Wednesday? Check out the video for Olick's assessment.

And by the way, Thursday we get data on the demand side of the housing market with existing home sales from the National Association of Realtors. Briefing.com consensus expectations are for a seasonally adjusted annual rate of five million units.

For April, existing home sales improved modestly but fell short of expectations of 4.98 million units, increasing 0.6 percent to 4.97 million units. NAR said sales remained below underlying demand because of limited inventory and tight credit.

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