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Housing Starts Get Multi-Family Boost, But Supply Chain Issues Linger

U.S. housing starts surprised to the upside in August, but homebuilders continue to caution that supply chain disruptions will curb activity over the final months of the year.

The U.S. housing market got a boost from multi-family construction last month, Commerce Department data indicated Tuesday, but supply chain disruptions continue to impact the single home market even as lumber prices ease and permits for new builds increased. 

Housing starts for the month of August rose 3.9%, well ahead of the Street consensus forecast of a 1% gain, taking the annual pace to around 1.615 million units. Permits for new construction were also notably higher, rising 6% on the month to an annual pace of 1.723 million units.

Nearly all of the August gains, however, were linked to multi-family homes, with new single-family home starts fell 2.8% from July to 1.076 million units. Multi-family home starts were up 52.6% from last year to 539,000 units. 

"The headlines look very strong but both were boosted by big increases in the volatile multi-family component, in the Northeast for starts and in the Northeast and South for permits," said Ian Shepherson of Pantheon Macroeconomics. "The trends in both (single and multi-family) are falling, in response to the steep drop in new home sales over the first half of the year." 

"Over the next few months, though, we have to expect single-family starts to drift lower, returning -- like new home sales -- to their pre-COVID level," he added. "The flight to the burbs which triggered the boom in home sales, prices, and construction activity is over, though mortgage demand has nudged back up in the past two months."

Permits for homes that builders have yet to break ground on are up 50% from last year, hit by the very supply chain disruptions that peeled back earnings forecasts for DR Horton  (DHI) - Get D.R. Horton, Inc. Report and Lennar  (LEN) - Get Lennar Corporation Class A Report over the past two days.

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Lennar, the nation's second-largest homebuilder, said "our company and the homebuilding industry as a whole continued to experience unprecedented supply chain challenges which we believe will continue into the foreseeable future" during the third quarter, adding that it expects to finish fewer homes -- 18,000 versus a prior forecast of 20,343 -- over the final three months of the year.

The forecast echoes that of its larger rival, DR Horton, which trimmed its fourth quarter sales forecasts yesterday, as well as that of PulteGroup PHM, which issued a similar warning earlier this month.

Lennar shares were marked 2.35% lower in pre-market trading Tuesday at $98.30 each while DR Horton edged 0.33% higher to $88.37 each. 

Last month, U.S. Senators Jerry Moran and Jeanne Shaheen, as well as Commerce Secretary Gina Raimondo, met with industry leaders to address both supply chain issues and the soaring cost of lumber, which has added nearly $30,000 to the price of a new single-family home, the National Association of Home Builders has estimated.

Still, homebuilder sentiment improved for the first time in three months in September, the NAHB said Monday, thanks in part to falling lumber prices and increased buyer traffic.

“The September data show stability as some building material cost challenges ease, particularly for softwood lumber. However, delivery times remain extended and the chronic construction labor shortage is expected to persist as the overall labor market recovers,” said NAHB Chairman Chuck Fowke.