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Home Affordability Concerns Depress Single-family Starts

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It’s no secret that housing costs are on a rapid upswing in many parts of the country, and it’s putting the squeeze on builders. While new data from the U.S. Department of Housing and Urban Development (HUD) and the Department of Commerce (DOC) show a 3.2% increase in overall housing starts for the month of November—a year-over-year gain of 5.1%—starts for single-family homes dropped 4.6% for a total of 824,000 units. Conversely, starts for multifamily residences, including condos and apartments, climbed 22.4% with 432,000. As this marks the third consecutive month of declines in single-family starts, affordability concerns among homebuilders are mounting.

“Favorable demographics support healthy housing demand, so it is frustrating that the housing affordability crisis is preventing many consumers from achieving their goal of buying a home,” said Robert Dietz, chief economist with the National Association of Home Builders (NAHB) in a recent statement. “While home ownership has increased over the last nine quarters, we can expect that upward momentum to stop due to rising home costs. Because housing leads the economy, we need to stabilize residential market conditions.”

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Indeed, a look at one of the chief indicators of what the future likely holds for homebuilding—overall permits—reveals that while permits increased 5% in November to 1.39 million, the number of those issued to produce single-family homes marked only a negligible rise of 0.1% for a unit pace of 848,000. From this gauge, multifamily home permits soared 14.8%, reaching an annualized rate of 480,000.

“The decline in single-family production over the last few months makes sense given the drop in our builder confidence index,” noted Dietz. “Builders are cautious to add inventory as housing affordability concerns are causing consumers to pause on making a home purchase.”

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Affordability varies regionally, as do the number of combined housing starts for both single-family and multifamily structures. Starts increased in both the West and the South, at 11% and 5.3%, respectively. In the Northeast, the number of housing starts dropped 0.8%, and the decline in the Midwest was a bit more pronounced, at 1.9%.

Similarly, while permitting figures in the West increased by 3.2% and by 8.2% in the South, the Northeast experienced a 2.8% drop in permit issuance, followed closely by the Midwest, where permitting fell 2.7%.

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