Spending on single-family home construction hit an all-time high in November 2021. But the pace of home completions isn't keeping up.
Despite labor, lot, and material shortages, home builders are completing single-family homes at the same rate they were in the final months before coronavirus upended daily life in the U.S.
While that seems like good news, there’s a catch: they’re spending 44% more to do it and homebuyers are picking up the bill.
Today’s report from the U.S. Census Bureau shows total construction spending hit a seasonally-adjusted annual rate of $1.63 trillion in November 2021 – an all-time high since the survey began in 2002. Single-family home (SFH) construction spending led all categories at an annual spending rate of $421 billion -- up 19.4% from the previous year.
It’s important to note that single-family residential construction spending data includes the value of improvements to existing homes in addition to new construction.
For $421 billion per year, home builders were on pace to complete 910,000 homes per year. That’s the third-highest completion rate for the month of November in the last 14 years. But it came at an unprecedented cost of more than $462,000 per home.
For comparison, builders spent $130 billion less in December 2019 to complete single-family homes at the same rate. Those homes cost less than $322,000 each to build.
Prior to 2019, the last time builders were completing homes at a rate near 910,000 per year was in March 2008 during the Great Recession.
At that time, the residential construction industry was dramatically scaling back as home values plummeted. They spent less than $220 billion to complete homes at a rate of 904,000 per year, putting the cost per home just under $308,000.
Month SFH construction spending (thousands) SFH completion rate (thousands) Spending per SFH November 2021$421,048,000910$462,690December 2019$292,575,000910$321,510March 2008$218,409,000904$307,974 Data from the U.S. Census Bureau.
Construction spending soaring to new heights boils down to three things.
First, supply chain issues caused shortages and prices increases of lots, labor, and building materials. Instead of normalizing over time, construction costs have become a game of whack-a-mole. Lumber goes up, cement goes down. Steel goes down, lot prices go up. And just when builders think they've cleared the board, lumber sneaks back up.
Second, despite volatile prices and availability, builders are ramping up their pace to meet ferocious demand for single-family homes. So what if it costs more to build a house? As long as one person is willing to buy it, builder can still sell for a profit. That's exactly what they did in 2021 and, barring a seismic shift in the market, what they'll continue to do in 2022.
Finally, residential construction spending also includes home improvements. Renovations popularity in 2021 as an outlet for cabin fever and a more affordable entry into homeownership. This too is likely to continue in 2022 as homeowners reinvest the 18% equity they earned in 2021 and homebuyers turn to fixer-uppers to combat rising home prices.