New Home Construction Slows As Labor and Material Costs Surge
February 22, 2022
New home construction fell in January, the first slowdown in four months, as builders contend with a shortage of skilled laborers and surging material costs.
Construction starts on residential units fell 4.1% from the month prior to an annualized rate of 1.64 million units. Economists polled by Bloomberg had expected an annualized rate of 1.7 million units.
The slowdown in construction coincides with homebuilder confidence falling in February to its lowest level since October. Homebuilder sentiment is falling as high labor and supply costs, coupled with higher mortgage rates, further diminish housing affordability and raise concerns that sales may begin to slow.
At the same time, the number of applications to build rose to an annualized 1.9 million units in January, the highest since 2006. The increase in building permits, as well as the growing number of construction projects that have been approved but not yet started, suggests that residential construction will remain robust in the coming months.