Builders Are Starting to Hit the Brakes

[Marc Winter]

Here’s something I think worth paying attention to:  apartment and home construction starts dropped sharply in May — reportedly down about 40%.  Building permits for new homes are down too.

That may sound like another dry statistic, but I believe it matters.  Today’s construction slowdown can make tomorrow’s housing shortage worse.

And the reason builders are pulling back is not hard to understand--buyers and renters are stretched.  Mortgage rates are housing prices are still high. Lots of buyers are frustrated because they want what they want, even though they simply cannot afford it!  

And the cost to build is increasing— land, permitting, labor, materials, insurance, and financing.  It ain't cheap!  Of course those rising costs means tighter margins for builders and higher prices for buyers.

So builders are asking a practical question: “Do we really want to start another project if buyers and renters are already struggling with the payment?”  That is not panic as much as self-preservation.

But here is why the concern:  when builders pause today, we may feel a little softness in the short term.  But down the road, fewer starts can mean fewer choices.  And fewer choices can keep pressure on prices and rents.

So we are in a strange spot--people need more housing, but the math for building more housing is getting harder.  That is why this market is not just about supply.

It is about affordability, and forced lowered expectations.

A home or apartment only solves the problem if people can actually afford the monthly payment.

What are you seeing in your area? Are builders still active, or are things starting to slow down?