Easing Lumber Prices Allow Projects to Push Forward; Seller Activity Increases
Completions climb to a three-month high. Builders finalized more single-family and multifamily housing units combined in July than in either of the previous two months. Deliveries will likely trend higher in the coming quarters as well. The moderation in the cost of a few key materials, most notably lumber, has boosted permit activity and is helping the pipeline of stalled residential developments move toward the finish line. In July, apartment permit fi lings lifted by 10 percent month over month as the lumber price index fell by 23 percent from the peak in May. Despite the more positive construction outlook, though, it will be difficult to meet demand as job gains and the economic recovery are accelerating household creation.
Inadequate supply pace sustains tight apartment vacancy. Nearly 1.4 million new households are projected to form in the U.S. this year as a result of both the aging millennial cohort and a broad-based economic improvement. Total residential completions are expected to trail that trajectory despite finalizations and permits elevating in July. Deficits of labor and lots as well as still-high material costs remain hurdles for builders to ramp up their pace. This will aggravate the housing shortage and sustain historically low multifamily availability as the lack of affordable single-family homes for sale leads many households to keep flexible apartment leases. Tight rental unit availability should promote rent growth in most markets across the nation.
More homes being sold a boon for some property types. Existing home sales jumped for the second straight month in July, while listings surpassed the 1 million threshold for the first time this year. High pricing may be prompting more owners to sell, as the median cost of an existing house eclipsed $350,000 for the first time on record. For buyers, low mortgage rates and greater economic clarity may be moving the needle. Self-storage will get a boost as more homes change ownership and people relocate, as this is one of the main demand drivers for the property type. Retail should also benefit as it is estimated that a home sale generates an additional $5,200 in consumer spending.