New home construction is on the decline – and that’s bad news for the housing market

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At a time when the demand for home ownership is so great, you might think that new construction is booming. But new buildings are actually on the decline.

Single-family home construction fell more than 13% in April compared to March, according to the US census. That’s the sharpest drop since April 2020, when the pandemic was new and practically the entire economy was forced to a standstill overnight.

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Why is residential construction suspended?

An important reason for the slowdown in new residential construction is rising material costs. Wood, for example, was scarce during the pandemic, which in turn caused the price to skyrocket. The steel and copper costs have also increased, which makes the new building more expensive. And while home builders have the potential to pass that cost on to buyers, some may not be ready to bite.

The shortage of skilled workers has also led to a decline in the construction industry. In fact, many industries are currently struggling with labor challenges, which is why some states have pulled the plug on increased unemployment.

What is happening to the housing market?

There is currently a record low number of apartments on the housing market. This, combined with extremely competitive mortgage rates, drives buyer demand. As a result, property prices have risen sharply in recent months, making it difficult for potential buyers to become owners. If new residential construction slows down further, this could exacerbate the already tight housing market, offer buyers fewer options and drive home prices even higher.

To be clear, building a new home is not necessarily a viable alternative to buying an existing home. The rising costs of building materials make new buildings more expensive than ever. But even so, new homes are adding inventory, and that’s essential at a time like this.

Will new home construction pick up soon?

Whether or not new residential construction picks up in the coming months depends on a variety of factors, with cost and availability of building materials perhaps the most important. But the way things are now, in today’s marketplace, frustrated shoppers may want to sit back and pause their apartment hunting.

There just isn’t a lot of inventory available right now, and waiting for things could make for a less stressful experience. The good news is that mortgage rates are likely to stay low for some time, so waiting to buy doesn’t necessarily mean you will stick to worse deal in that regard.

In addition, the severity of the hurricane season could also affect new home construction in the coming months. It’s really unpredictable whether or not new construction will continue to decline, but buyers may want to assume that newly built homes will largely be off the table in the near future, due to both a slowdown in construction and the price tag involved.



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