The single-family home construction industry may be headed for a downturn. Data from US Census Bureau shows that single-family building permits fell 7.7% year-over-year in October, reaching a seasonally adjusted annual rate of 1.416 million units. Housing construction did not improve much, falling 4% from one year ago.
While single-family home completions were up 16.8% year-over-year, data on starts and permits suggest fewer units will come online in the coming months.
“Builders continue to face headwinds, including high construction costs and a shortage of skilled workers,” said Odeta Kushi, deputy economist at Odeta Kushi. First Americansaid the statement. “However, demand for new homes remains a bright spot in the wider housing market, compared strongly to weakness in existing home sales. The ability of builders to offer incentives and the high value of real estate underpins this relative strength.”
Data compared to September shows a decline again, with approvals (-0.6%), starts (-3.1%) and completions (-4.4%) all falling month-on-month.
By region, housing starts in the Northeast took a 28.7% dive compared to September but were up 9.8% year over year. Starts in the South were down 10.2% for the month, while figures in the Midwest (+4.6%) and West (+4.6%) were up compared to September.
Newly built homes have become a bright spot in the housing market as builders use speculative construction techniques. Larger builders can offer better financing terms with rate purchases and other options.
But the election of Donald Trump is clouding the view of the builders. Trump has offered few details of the housing plan during the presidential campaign, although it is expected that deregulation, tax cuts, freeing up federal land and the prospect of lower mortgage rates will be part of it.
While this may benefit some parts of the housing market, Trump’s policies on taxes and immigration could make life difficult for builders. Data from American Immigration Council shows that 13.7% of construction jobs by 2022 involve undocumented workers. Mass layoffs could exacerbate labor shortages that are already a problem for builders.
Trump proposed a 10% tariff on all foreign goods, a 60% tariff on all Chinese goods and a 100% tariff on all Mexican goods. Although it is difficult to analyze what effect this will have on construction inputs – or how serious Trump is about using higher prices in this way – it is all but a given that they will increase the prices of certain items.
However, the house builders are optimistic about the new administration, such as the National Association of Home Builders (NAHB)/Wells Fargo The Housing Market Index (HMI) has risen for three straight months, including the November reading taken after the election.
“Builders are expressing increasing confidence that Republicans getting all the reins of power in Washington will lead to significant deregulation in the industry that will lead to more homes and apartments being built,” said NAHB Chairman Carl Harris in a statement about HMI. “This is reflected in the large increase in builders’ sales expectations over the next six months.”
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