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Home Construction Jumps. That Means More Homes Next Year, Right?

Home Construction Jumps. That Means More Homes Next Year, Right?
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Home.com Staff

After a year of setbacks due to material and labor shortages, homebuilders seem to be gaining momentum as the housing market heads for another busy spring.

Thursday’s New Residential Construction report from the U.S. Census Bureau shows the pace of issuing permits and starting construction on single-family homes increased from October to November, indicating the strongest construction pipeline in several months.

That’s good news for homebuyers who have been scrapping over limited housing inventory throughout the pandemic. A wave of new homes in the spring could lessen the imbalance between supply and demand that has been driving up home prices throughout the pandemic.

Related reading: What Will Homebuying Be Like in 2022? Here’s What New Forecasts Say

For single-family construction starts, a rate above 1 million is strong considering homebuilders operated below this rate from August 2007 to November 2019. This decade plus of underbuilding is a key driver of the current housing shortage.

Building permits for single-family homes increased 2.7% from October to a seasonally-adjusted rate of 1,712,000 per year. That’s the fastest rate of authorizations since May 2021 and clears a path for more construction starts in the coming months.

But it’s not just permits that had a good month. Builders actually broke ground on 11.8% more single-family homes compared to October, for a seasonally-adjusted annual rate of 1,679,000 units.

That’s also the fastest rate since March and an 8.3% increase from last November’s rate of around 1.5 million.

november fingle-family home construction rates

Homebuilders operated below the psychologically significant 1 million mark from August 2007 to November 2019. This decade plus of underbuilding following the 2008 market crash is a key driver of the current housing shortage.

Will more permits and starts increase spring supply?

The increase in housing permits and construction starts signals a recovering homebuilding industry, but that means little for homebuyers unless it translates into a more abundant and affordable housing supply.

Whether homebuilders are able to provide that by the peak homebuying season in the spring and summer remains to be seen.

From permitting to final walk-through, homes typically take around six months to build. That means permits issues in November 2021 would become completed homes in May 2022, at the earliest.

However, supply chain tangles and labor shortages have made homebuilding slower and more expensive. Currently, circuit boards for appliances, cabinets, and windows are causing the most significant delays.

Waiting on these materials can drag out the building process for weeks or months. It can also increase the price tag as builders pass on the inflated materials costs to homebuyers knowing there is sufficient demand to do so.

According to the National Association of Home Builders Market Index – also known as the “confidence” index – homebuilders are as optimistic about current and future single-family homes sales as they have been all year, despite significant barriers. That can only mean one thing: they know buyers will pay high enough prices to justify the extra time expense of building a home.

But even if new home prices remain high, the addition of new inventory may relieve some pressure from the existing-home market, especially as supply chains untangle and the construction labor force grows. For homebuyers, any addition to the housing supply is a welcome one.


Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.

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