Rising Construction May Ease Housing Price Pressures, Economist Says

Despite the monthly volatility of multifamily housing permits, single-family housing permits — a reflection of future owned supply — persist in recovery, according to Employ America Executive Director Skanda Amarnath.

While there is a slowdown in multifamily housing permits, the number of units under construction continues to rise, indicating an ongoing expansion in the multifamily housing sector.

As of now, the multifamily housing supply under construction stands at less than 26 months, approaching the pre-COVID-19 pandemic normal range of 19 to 24 months, Amarnath said, which can be taken as an indication that the housing market is showing signs of vitality.

First American Executive Chief Economist Odeta Kushi, on the other hand, painted a more conservative picture of the single-family housing market.

Kushi said U.S. housing starts are expected to see a decline to an annual pace of 1.48 million in June from 1.631 million in May. The actual numbers came in slightly lower than expected, with June’s privately owned housing starts reported at a seasonally adjusted annual rate of 1.434 million, falling 8% from the revised May estimate and 8.1% lower than the same time lin 2022.

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The chief economist highlighted key indicators, noting that single-family housing permits were up 2.2% month-over-month, a leading indicator of future starts. But starts were down 7% month-over-month and completions were down 2.8%, indicating less groundbreaking on new homes and less supply being added to the housing stock.

While builder sentiment nudged higher in July to its highest level since June 2022, the pace was slower than in previous months, signaling a moderated and cautious optimism. There remained a strong demand in the housing market, but the pressure of higher rates continued to strain affordability.

Although builders are currently benefiting from the lack of resale inventory, Kushi warned of potential threats. Reduced affordability, combined with ongoing supply-side challenges and tighter lending standards for acquisition, development and construction (AD&C) loans, could potentially thwart builder momentum.

Kushi noted a steady increase in single-family housing permits, reflecting the shortage in the U.S. housing market. The current supply of existing homes is insufficient to meet the demand, and as such, builders are increasing their efforts to meet the needs of the market.

This rise in construction activity should eventually help exert some downward pressure on prices, Kushi said.

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