Cold Weather Only Partially To Blame For Slow Home Construction

Last week, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau released figures showing that in January 2014, housing starts fell 16 percent to a seasonally adjusted annual rate of 880,000 units. These numbers reflect a two percent dip from January 2013. Additionally, it was reported that single-family permits declined 1.3% to a seasonally adjusted annual pace of 602,000 units.

Cold weather clearly put a chill on new home construction,” observed Kevin Kelly, the chairman of the National Association of Home Builders (NAHB) and a home builder and developer himself.  Certainly, the unusually harsh winter we have had is partially to blame. For instance, from December to January, the pace dropped 67.7% in January in the snow-covered Midwest, whereas it fell only 12.5% in the milder South.

However, the rough winter alone does not explain these numbers. For example, it does not correlate with the statistic that from December to January the Northeast increased its rate of groundbreakings by 61.9%. The online real estate data firm Trulia estimates that over the past decade, severe winters have contributed to, at most, a two percent drop in construction activity, a much lower percentage than the one announced last week.

Other Factors: Reduced Inventory and Shortage of Labor

Indeed, other factors appear to have impacted the January statistics. For one, there has been a sharp decline in housing inventory over the last few years. Not only have many recent investors been purchasing homes intending to rent them out rather than sell them, but those who do intend to sell understand that the market is stabilizing and are waiting to sell until it is more opportune for them. Additionally, the reduced amount of inventory adversely impacts the likelihood that a homeowner can find a suitable “move-up” home and, at least for the time being, those homeowners are staying put.

There is also a shortage of skilled labor. According to the U.S. Bureau of Labor Statistics, 2.3 million of the 8.2 million jobs lost during the recession were in construction, and due to the lingering effects of the collapse of the housing market, it will take several more years to build up a supply of skilled laborers. Meanwhile, those who are available to work are demanding significantly higher wages than in years past.

The February 2014 New Residential Construction data will be released on Tuesday, March 18.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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