Permits for new construction, which are typically a forward-looking indicator of new starts, dropped 3% to a seasonally adjusted annual pace of 1.68 million. Single-family permits were running at a 1.13 million rate – 1.6% below the revised April rate of 1.15 million. Meanwhile, multifamily permits were at a 494,000 pace in May.
Odeta Kushi (pictured), chief economist of First American, said that the holdback in single-family permits is an indication of “how building material cost increases and delays slow home homebuilding.”
“Even as builders have adopted price escalation clauses to cover any price increases that could occur during building due to supply-side limitations, there are concerns that higher new home prices could cause some would-be buyers to pull back from the market,” she said.
Fannie Mae chief economist Doug Duncan echoed Kushi’s sentiments.
“With brisk house price appreciation and a continued lack of existing home sale listings, demand for new construction remains robust. However, homebuilders continue to face supply constraints, namely shortages of building materials, labor, and buildable lots,” Duncan said. “With lumber prices falling in recent weeks and a strong backlog of homes sold-but-not-yet-started, we expect some upward movement in single-family starts in the coming months as delayed and put-off projects are initiated.”