Housing Affordability Hurt by Price Increases, Production Bottlenecks

While the market needs more housing, chronic production bottlenecks, including ongoing price increases for lumber and OSB, continue to raise housing costs and harm housing affordability, according to a new report from National Association of Homebuilders (NAHB).

“In fact, the number of single-family homes under construction continues to rise as construction cycle times increase due to delivery delays with building materials,” its Chairman Jerry Konter said in prepared remarks.

With builders continuing to report supply chain problems that are causing construction delays, overall housing starts decreased 4.1% to a seasonally adjusted annual rate of 1.64 million units, according to a report from the US Department of Housing and Urban Development and the US Census Bureau.

However, in a sign of strong demand, building permits increased at a solid pace in January.

Builder Sentiment Suggests a Positive Start to Year

The January reading of 1.64 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. 

Within this overall number, single-family starts decreased 5.6% to a 1.12 million seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, decreased 0.8% to an annualized 522,000 pace.

“While single-family starts dropped in January, the rise in permits, along with solid builder sentiment as measured in recent monthly surveys, suggest a positive start to the year given the recent rise in mortgage rates,” NAHB Chief Economist Robert Dietz said.

“The average 30-year mortgage rate increased from 3.1% to 3.45% from December to January. Fueled by higher mortgage rates and construction costs, declining housing affordability will continue to affect the home building market in 2022.”

Starts Higher in Northeast, West

On a regional basis compared to the previous month, combined single-family and multifamily starts are 2.6% higher in the Northeast, 37.7% lower in the Midwest, 2% lower in the South and 17.7% higher in the West.

Overall permits increased 0.7% to a 1.9 million-unit annualized rate in January. Single-family permits increased 6.8% to a 1.21 million-unit rate. Multifamily permits decreased 8.3% to an annualized 694,000 pace.

Looking at regional permit data compared to the previous month, permits are 48.3% lower in the Northeast, 0.7% lower in the Midwest, 11.4% higher in the South and 13.9% higher in the West.

There are now 785,000 single-family homes under construction, a 26.8% year-over-year gain. There are 758,000 multifamily units under construction — a 14% gain.