Home building costs fell slightly in September but remain elevated. Here's why inventory remains low despite high construction spending.
After a tumultuous 18 months, single-family home construction is settling into something of a new normal.
According to the U.S. Census Bureau, the value of construction put in place fell for the second straight month in September while the rate of single-family home completions remained steady. This relationship suggests that home builders are maintaining their pace while spending less, which is welcome news for homebuyers who have been footing the bill for rising construction costs throughout the pandemic.
Construction spending for new single-family homes rose for 13 consecutive months from June 2020 to July 2021. In that time, the seasonally-adjusted annual rate of value put in place increased from $271 billion to $417 billion.
But increased spending has not necessarily translated into more single-family homes -- just more expensive ones.
In July 2020, home builders were spending at a seasonally-adjusted rate of $283 billion a year to complete 950,000 single-family homes per year. By July 2021, they were spending $417 billion to complete nearly the same amount of homes (954,000).
During that time period, the national median home sale price for single-family homes increased from $335,000 to $401,000.
Home builders have been facing three main shortages since early in the pandemic:
For more than a year, these shortages have made homes more expensive to build and, in turn, more expensive to buy. It’s also kept much-needed housing inventory from coming online, fueling a hyper-competitive market.
In recent months, some of these challenges have started to ease. According to the National Home Builders Association, lumber and concrete prices peaked in July and have been decreasing as knots in the supply chain untangle. The cost of trade services has also been on a substantial decline since July.
Construction hirings have also been solid for several months as the construction industry continues to rebuild its workforce after pandemic layoffs.
Shortages in lots -- the land homes are built on -- is proving to be a sticky challenge for home builders. In October, 76 percent of home builders reported the supply of lots was low to very low -- an all time record since the survey began in the 1990’s. The previous record was 65 percent in 2018.
Overall, the pandemic threw several wrenches in the home building process, but the industry seems to be settling into something of a new normal. Unfortunately for homebuyers, that new normal includes higher prices for homes until supply and demand find a more even balance.