August brought a slowdown in home construction as Housing Starts, which measure the start of construction on homes, fell 11.3% from July. While the bulk of the pullback came in multi-family units, starts for single-family homes also declined 4.3%. Building Permits, which are indicative of future supply, did rise 6.9% from July while permits for single-family homes reached their highest level in a year.   

What’s the bottom line? Given the resurgence in rates last month, it’s possible that builders were readying permits for what they hope is a pivot on rates and the increased buyer traffic that should follow.

Regardless, supply is still well below current demand. When we look at the pace of completed homes that will be coming to market (around 1.4 million homes annualized) and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 2 million. Even looking at future supply (Building Permits at 1.5 million annualized), we’re still lower than where we need to be.

This ongoing disparity between supply and demand is a key reason why home values continue to rise and why now provides great opportunities to take advantage of appreciation gains.