Homebuilding Starts to Pick Back Up as Buyers Adjust to New Pricing Norms in Tight Market

After months of slowdown in the wake of weaker buyer demand, homebuilders are starting to pick up on construction – and feeling more confident about the housing market since mortgage rates surged last year.

Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1.63 million, a 21.7% increase from the April estimate of 1.34 million, the US Census Bureau reported this week. Meanwhile, privately owned housing units authorized by building permits last month were at a seasonally adjusted annual rate of 1.49 million, 5.2% higher than in April but 12.7% less than the May 2022 rate.

The jump in home starts observed last month is notable, said Kelly Mangold, a principal at BCLCO Real Estate Consulting.

“There’s such a low level of inventory on the market (and) so many people are locked into very low interest rates, which makes new homes one of the more available options in a lot of markets,” Mangold said.

Major homebuilders like Miami-based Lennar Corp. (NYSE: LEN) are expecting to build more homes this year than originally anticipated Stuart Miller, the company’s executive chairman, said during the builder’s earnings call the housing supply-chain issues and construction costs have abated since the depth of the Covid-19 pandemic.

A monthly pulse check of the homebuilding industry suggests greater optimism, too. The National Association of Home Builders/Wells Fargo Housing Market Index, a monthly survey of NAHB members that measures present single-family home sales, single-family sales for the next six months and traffic of prospective buyers, found improvement on all three metrics for its June 2023 index. All index measurements were lower than where they were a year ago though.