Are Homebuilders Holding Off Construction to Game Rising Prices?

By Qiong (June) Zhang117 Comments

New home construction rose less than expected in May. The Commerce Department said last week housing starts rose 6.8% to a seasonally adjusted annual rate of 914,000 units versus expectations of 950,000.

Reuters reports this miss likely reflects labor and material constraints. CNBC Real Estate reporter Diana Olick adds to the list a lack of land and a supply chain for homebuilders that wasn’t ready for this pick-up in demand. But Olick also suggests the holdup in construction may be intentional.

“Believe it or not we’re hearing from some builders – self-admittedly – that they are slowing production of new homes because they want to take advantage of these rising home prices,” Olick tells The Daily Ticker in the accompanying interview. “In the last new home sales report we actually saw a huge spike in new home sale prices, and they like that. Of course they want to sell the homes for more money so they’re actually keeping the supplies lean in some cases.”

And bigger picture there is the question of if the recovery is real and sustainable. All of the data showing a recovery in housing is arguably built on a foundation including massive Federal Reserve support in the form of monetary stimulus.

For April, existing home sales improved modestly but fell short of expectations of 4.98 million units, increasing 0.6% to 4.97 million units. NAR said sales remained below underlying demand because of limited inventory and tight credit.


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