Despite the hotter temperatures this week there is one thing that is cooling off this summer and that is new home construction unfortunately. Housing Starts dropped 6% month-over-month in May to 1,277,000 units which was both below expectations and the lowest figure seen in 4 years. Building Permits for future construction also declined month over month, with permits for new multifamily units down 31% year-over-year.

I don’t have to tell you that this is not great news. The one thing that we all collectively agree on is that there needs to be more inventory not less! There are a couple of reasons for this starting with the obvious, inflation and interest rates. Building costs are up and it costs more to take out loans to build new homes. Plus high interest rates have either priced people out of the market or discouraged them from moving forward. All of this has lead builder’s confidence about the market to drop. It takes years for a builder to take a plot of land and turn it into a community. If they are not confident that there are going to be lots of buyers lined up they are not going to risk going through the process.

While all of this is not great news there is a way to use this information to educate your clients. For anyone sitting on the fence and waiting for home prices to go down you can show them these charts. This lack of new builds is only going to exacerbate the housing supply issue over the next few years. If people think that the bottom is going to drop out of the housing market there is simply no evidence of that. If/when rates drop then everyone who was sitting on the sidelines will jump back in causing more competition for the existing homes that are out there. Better to get a home now and refinance later then deal with higher home prices and more competition in the future.