US Desperately Needs Housing Supply, So Why Has New Home Construction Sunk To 4-Year Lows?

Amid significant challenges facing the U.S. housing market, metrics released in June are not encouraging signs that the U.S. can get out of its current rut.

What Happened: Data released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development did not offer encouraging signs for a recovery in the U.S. housing market.

New home construction “starts” declined 5.5% year-over-year to an annual 1.28 million units, its lowest level since June 2020.

Housing permits also dropped by 3.8% to 1.39 million, its lowest level in 4 years.

Meanwhile, prices of materials required to build new homes remain at elevated levels. A sustained, higher-for-longer interest rate environment is certainly not helping either.

Existing homeowners, dubbed “NIMBYs” (Not In My Backyard), are reluctant to allow building permits and housing developments. Given the fact that home prices remain at highly elevated levels, an increase in construction would send their home prices spiraling downward.

Why it Matters: Experts believe that new home construction is a key catalyst toward bringing the U.S. housing market back toward long-term equilibrium. A report from Bernie Mac found that the U.S. housing market is 1.5 million homes below a balanced supply.

In June, the median sale price of a U.S. home reached an all-time high of $394,000.

The administration of President Joe Biden unveiled several initiatives in an attempt to quell housing trends, including a renewed push to add 500,000 starter homes to the U.S. supply.

Housing costs continue to drive inflation and serve as a key barrier for the Federal Reserve to cut interest rates in the coming month.

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Image created using artificial intelligence via Midjourney.