Despite Inflation, U.S. Home Construction Increases Nearly 12 Percent in November

New home construction in the U.S. rose 11.8 percent in November, partly due to a previous lack of houses for sale that caused prices to skyrocket.

The National Association of Home Builders (NAHB) said there's still a high demand for new homes. But finding workers, issues with the supply chain, fluctuating costs and other delays are making it challenging for builders to complete projects.

Applications for building permits increased in November by 3.6 percent to 1.71 million units, a rise of .9 percent from the same time last year.

The S&P CoreLogic Case-Shiller report's home prices index for 20 cities rose 19.1 percent in September compared to last year. The cost to buy a home set a record for all the cities, showing strong demand in the market.

Last month, the Commerce Department said the average price for a new home in October was $407,700, nearly 18 percent higher than the year before, also setting a record.

Robert Dietz, NAHB chief economist, said single-family homes in 2021 are predicted to finish 24 percent higher than during the pre-pandemic levels in 2019. But higher interest rates in 2022 will limit how affordable the houses will be, he said.

Home Construction Price Increase
New home construction in the U.S. jumped 11.8 percent in November as builder confidence continued to rise amid strong demand. The double-digit increase left home construction at a seasonally adjusted annual rate of 1.68 million units, an 8.3 percent increase from the rate at this time last year, the Commerce Department reported on December 16, 2021. Matt Rourke/AP Photo

On Wednesday, the Federal Reserve announced that it will reduce its monthly bond purchases—which are intended to lower long-term rates—at twice the pace it had previously set. The Fed is trying to stamp out persistent inflation that has accelerated to a nearly four-decade high.

The Fed's action may raise borrowing costs across the economy in the coming months, but policy changes don't always immediately affect other loan rates. Even with three rate increases next year, its benchmark rate would still be historically low, below 1 percent.

Construction of both single-family homes and apartments were strong in November, with both seeing low double-digit percentage increases from October. Despite last month's increase, single-family housing starts are still down 0.8 percent from November of last year.

The double-digit percentage increase last month left home construction at a seasonally adjusted annual rate of 1.68 million units, an 8.3 percent increase from the rate at this time last year, the Commerce Department reported Thursday. October's home construction number was revised downward slightly to 1.5 million units from 1.52 million units.

Although the big jump in November after somewhat sideways movement the past few months suggests the housing market is still strong, economists are reluctant to put too much weight in the volatile monthly housing starts data.

Construction activity by region saw the biggest jump in the Northeast which rose 27.5 percent, followed by the South's 18.4 percent gain. Building in the West rose 5.1 percent, while activity in the Midwest declined 7.3 percent.

A monthly survey of builder sentiment released Wednesday by the National Association of Home Builders and Wells Fargo showed sentiment improved for the fourth straight month, inching up to 84 in December from 83 last month. The index hit a record reading of 90 last November.

"It is best to just keep in mind that builders have more than enough work to keep them busy and interpret the ups and downs in the numbers as mostly noise and seasonal volatility," said Stephen Stanley, chief economist for Amherst Pierpont.

The Associated Press contributed to this report.

House Construction Price Increase
The U.S. real estate market is booming even as the coronavirus crisis intensifies, and the seemingly insatiable appetite for new and older homes has sent prices soaring, meaning more and more families with modest incomes are seeing their dreams of owning property shattered. Chris Delmas / AFP/Getty Images