Housing Starts Fall in June as Remodeling Confidence Increases in 2018 Second Quarter
The rising costs of materials, particularly lumber, are impacting both housing starts and remodeling.
Total housing starts fell 12.3% in June 2018 to a seasonally adjusted annual rate of 1.17 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. The June reading of 1.17 million is the number of housing units builders would begin if they kept this pace for the next 12 months. Within this overall number, single-family starts fell 9.1% to 858,000 units. Meanwhile, the multi-family sector (includes apartment buildings and condos) dropped 19.8% to 315,000.
Overall, permits dropped 2.2% to 1.27 million units in June, the lowest level of the year. Although single-family permits edged up 0.8% to 850,000, they remain at their second-lowest reading of 2018. Multifamily permits fell 7.6% to 423,000.
“We have been warning the administration for months that the ongoing increases in lumber prices stemming from both the tariffs and profiteering this year are having a strong impact on builders’ ability to meet growing consumer demand,” said Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La. “This is why we continue to urge senior officials to take leadership and resolve this issue.”
While overall production is 7.8% higher than its level over the same period last year, the June report raises concerns about a softening in housing production over the near term. “The concern over material costs, especially lumber, is making it more difficult to build homes at competitive price points, particularly for newcomers entering the housing market,” said Michael Neal, senior economist with the NAHB. “Moreover, the soft permit report does not suggest a significant increase in housing production in the near term. However, consumer demand for single-family housing continues to increase as the overall economy and labor market strengthen.”
Combined single- and multi-family housing starts fell in all regions of the country. Starts fell 3% in the West, 9.1% in the South, 35.8% in the Midwest and 40% in the Northeast. Looking at regional permit data, permits rose 6.2% in the South. Permits fell 1.8% in the West, 16.4% in the Northeast and 18.7% in the Midwest.
Meanwhile, the NAHB’s Remodeling Market Index (RMI) posted a reading of 58 in the second quarter of 2018, up one point from the previous quarter. The RMI has been consistently above 50—indicating that more remodelers report market activity is higher compared to the prior quarter than report it is lower—since the second quarter of 2013. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.
“Remodelers across the country continue to see demand,” said Joanne Theunissen, CGP, CGR, the association’s remodelers chair and a remodeler from Mt. Pleasant, Mich. “However, the rising cost of materials is impeding the market’s ability to be even stronger.”
Current market conditions decreased one point from the first quarter of 2018 to 57. Among its three major components, major additions and alterations waned one point to 55, minor additions and alterations decreased two points to 58, and the home maintenance and repair component rose two points to 59.
The future market indicators gained four points from the previous quarter to 59. Calls for bids fell two points to 55, amount of work committed for the next three months increased two points to 56, the backlog of remodeling jobs jumped nine points to 66 and appointments for proposals rose seven points to 61.
“Improving economic growth is supporting demand for home remodeling,” said Robert Dietz, the NAHB’s chief economist. “However, remodelers have to deal with rising material prices, especially lumber, and the continued shortage of labor to keep prices competitive. The labor shortage is also a factor contributing to the increasing backlog of remodeling jobs.”
Additional details are available at www.nahb.org.