Residential construction continues to fall behind the increasing demand for new homes, according to the latest Outlook report from Freddie Mac.
Single family housing starts increased 6.3% in June to 849,000 homes, a recent report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development shows.
However, this was not enough to keep up with the rising demand, as new home sales increased just 0.8% from May to June, but decreased 9.1% from June 2016. Experts later explained new home sales are being held back by a lack of housing inventory.
Since the beginning of the year, housing starts fell 14%, according to Freddie Mac’s report. One reason for the decrease is the rising development costs for builders including land costs and more burdensome land-use regulations.
The construction industry also continues to struggle with a shortage of skilled labor, Freddie Mac reported. The number of open construction jobs has risen steadily since the recession to 154,000 openings in May this year.
This increase in job openings is due to the industry’s struggle to attract Millennial workers and the increased enforcement of immigration laws.
The construction sector employs the second-highest share of undocumented workers at 1.1 million, however now builders struggle to find workers due to stricter immigration and the latest housing collapse, which caused many workers to leave without returning.
Materials are also growing more expensive as the Trump administration recently announced an increase in Canadian lumber tariffs.
“A decade after the Great Recession, the housing market is rebounding,” Freddie Mac Chief Economist Sean Becketti said. “House prices today are higher than they were at the peak in the summer of 2006, near-record-low mortgage rates have boosted housing demand, and sales volume is robust.”
“The spoiler is the lean inventory of houses for sale,” Becketti said. “Nationally, just over five months of supply is for sale and hot markets are much tighter than the national average. So far, residential construction is not doing much to fill the gap.”
Freddie Mac predicted housing starts will remain below their long-run average with an annual rate of 1.27 million. Home prices are expected to increase 6% for the year, and mortgage rates will continue to hover near 4% through the end of the year.
