Steel Markets

Housing Starts Cool in January as Lumber Prices Soar

February 18, 2021

Housing starts slowed in January as contractors struggle to build affordable homes amidst rising construction costs. Housing starts slid 6.0% in January to a seasonally adjusted annual rate of 1.58 million, according to the latest report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

homeConstruct “The weakness in housing starts in January is consistent with our recent builder surveys,” said National Association of Home Builders Chief Economist Robert Dietz. “Builders report concerns over increasing lumber and other construction costs and delays in obtaining building materials. Rising interest rates will also erode housing affordability in 2021, as existing home inventories remain low.”

Lumber prices reportedly have doubled in cost over the past three months ago. The Associated General Contractors of America is calling for the removal of trade tariffs on Canadian lumber that are contributing to higher lumber prices.

“The extreme price increases, as reflected in today’s producer price index report and other sources, are harming contractors on existing projects and making it difficult to bid new work at a profitable level,” said Ken Simonson, the association’s chief economist. “While contractors have kept bids nearly flat until now, project owners and budget officials should anticipate the prospect that contractors will have to pass along their higher costs in upcoming bids.”

Single-family starts tumbled 12.2% from December to January. All regions posted declines except the Northeast, which saw a 2.5% gain. Construction starts for new homes with five units or more rose 16.2% from December, but was down 35.1% from a year ago.

New permit authorizations jumped 10.4% to a rate of 1.881 million last month and was 22.5% higher than a year ago. Permits for single-family homes rose 3.8% from December to a rate of 1.269 million. Multi-family permits for buildings with five units or more jumped 28% to a SAAR of 557,000.

NAHB forecasts single-family home construction will weaken at the start of 2021 and return to the “long-run post-Great Recession” pace as the year continues.

“Demand conditions remain solid due to demographics, low mortgage rates and the suburban shift to lower cost markets, but we expect to see some cooling in growth rates for residential construction in 2021 due to cost factors, supply chain issues and regulatory risks,” said NAHB Chief Economist Robert Dietz. “Some builders are at capacity and may not be able to expand production due to these headwinds.”