Housing starts hit 3-month low amid supply shortages
July housing starts fell 7% amid supply shortages. First American Deputy Chief Economist Odeta Kushi joins Yahoo Finance Live to discuss.
Video Transcript
BRIAN CHEUNG: Welcome back. We're getting a fresh picture on the state of this hot housing market. The Census Bureau and HUD reporting this morning that US housing starts dropped 7% last month to a three-month low. That's an annualized rate of about 1.5 million.
But maybe some optimism in the ability to build more in the future. You can see building permits actually rose 2.6% to an annualized rate of 1.6 million. So does that suggest a cooling in that hot housing market?
For more, let's bring in Odeta Kushi. She's deputy chief economist at First American. And Odeta, I guess there's a supply story that could be behind that decline when it comes to maybe not be able to have the labor or materials. But there's also the demand story, right? So maybe the highest of housing demand has passed. How are you reading the housing starts data that we got this morning and what that tells us about whether or not we reached the peak in this housing market?
ODETA KUSHI: Yeah, so an underwhelming report, but not unexpected. Builders are facing multiple supply-side headwinds. We've all heard about lumber shortages, which luckily are starting to ease. But there's also skilled labor shortages, shortages in appliances, and, of course, buildable lots, lack of buildable lots. And then, of course, builders have always faced regulatory burdens to building more homes. And so all of those are headwinds to building more homes, especially with the backlogs that builders are facing nowadays.
On the demand side, it's all about benchmarks. Obviously relative to last year, when we had this unleashing of pent-up demand during the pandemic, mortgage purchase demand is lower than one year ago. But actually, if you look back before the pandemic, purchase demand is still at a near decade high. We're at about 2019 levels, which is the best in about a decade. And so it's basically like going from an extremely hot market to a hot market.
AKIKO FUJITA: So the big question we've been asking for some time, when do we-- when do we expect things to balance out?
ODETA KUSHI: So it's tough. You really need to bring more supply to the market, right? The reason we're seeing double-digit house price growth is because there's this severe supply-demand imbalance in the housing market. And it won't be overnight. You can't just bring more inventory to bridge that gap overnight. So it'll be some time.
But with that said, there could be some moderation in house price growth in the months to come because we are seeing affordability decline. And so you might see fewer bidding wars and some would-be buyers kind of pull back in this market, which should bring some moderation to house price growth. But it should still remain positive.
BRIAN CHEUNG: Now, Odeta, I guess one question, naturally, is that people saw what happened with this hot housing market in 2020. But I think a lot of people at the time were hoping that by the time we got to the late summer of 2021, those would have abated. Now, is there a demographic change in the types of people that are buying in 2021 versus 2020? Is it the same person that's buying a second house? Is it that same millennial that got a big windfall from a lot of the fiscal stimulus that we got that are doing this type of buying? Or is the demographic now and the geographic focus of where these houses are being bought different now than it was in 2020?
ODETA KUSHI: This is a longer-run demographic story. We're seeing a longer-run shift from renting to home owning. That is primarily driven by the largest generation in history, the millennials.
And so we're still seeing millennials out there. They had excess savings during the pandemic. And they're still looking to buy that first home as they age into these key lifestyle decisions that are highly correlated with buying a first home-- getting married, having kids, moving out to the suburbs. So we're still seeing a wave of millennial demand in the housing market today.
AKIKO FUJITA: And Odeta, on the supply side, or specifically as it relates to materials and construction costs, what do you see the biggest headwinds right now? If we're talking about a potential leveling out down the line, what are some of the bumps we're anticipating in the next few months as we continue to see a bit of a backlog on the supply side?
ODETA KUSHI: Right, so builders are still facing backlogs. There are still homes that are sold that have not yet been started. And so builders have to make their way through those backlogs. But then, of course, there are all of these material shortages. And we do anticipate some of those supply bottlenecks to ease in the second half of the year, which is good news.
And some other good news is actually that there's been a rise in residential construction employees. You can't build more homes without more construction workers. And so it's good to see that number continue to rise. That should help ease the burdens that the construction industry is facing as well.
BRIAN CHEUNG: Are there different trends between single-family and multi-family builds right now? I mean, obviously, when it comes to the building permits, if they did, indeed, increase in the month of July-- there should be pointed out a band of error that the Commerce Department-- or rather, the Census Bureau reports alongside these figures. But do we know about the nature of these types of builds and also maybe where across the country we should expect to see that pipeline maybe beef up in the coming months?
ODETA KUSHI: So the rise in permits was primarily driven by multifamily. But as you mentioned, multifamily numbers tend to be quite volatile. With that said, we are seeing the multifamily sector regain momentum. You see rental prices increasing, specifically in Sun Belt markets. As people start to move into some of these more affordable Sub Belt markets, you start to see rental prices increase.
And so you do kind of see the multifamily sector regain momentum. But we also need to see more building on the single-family side, because that makes up the majority of home building. So it was good to see multifamily permits pick up. But we need to see the overall permits pick up as well.
AKIKO FUJITA: Odeta Kushi, First American deputy chief economist, it's great to get your insight today. Really appreciate the time.
