From staff and wire reports

U.S. home construction increased 3.6% in May as builders battled a surge in lumber prices that has made homes more expensive.

The May increase left construction at a seasonally adjusted annual rate of 1.57 million units, the Commerce Department reported Wednesday.

Applications for building permits, looked to for indications of activity ahead, fell 3% in May to a seasonally adjusted annual rate of 1.68 million units.

Builders are getting one break. Lumber prices, which surged to record levels this year, have started to come down, but a Spokane-based contractor said the price changes aren’t expected to seen in the region for weeks and higher prices for new homes will continue even if the region’s lumber prices drop.

Jim Warner, owner of Solid Structures of Spokane who builds some homes but mostly shops and some commercial construction, said he’s seen little to no downward movement on lumber prices in the area.

“When they say lumber prices are coming down 20%, it’s still 30% higher than we saw before anyway,” Warner said. “It’s still not going to go down to where it was.”

Even if lumber prices fall, the price of an average building will still be 30% to 40% higher than even a year ago, Warner said.

“I haven’t heard anything about steel or copper prices coming down,” he said. “Lumber is a huge part of the house building process. If lumber prices come down 20% that’s going to help, but it’s not going to drop the price of building a house by 20%.”

Nationally, housing has been one of the standout performers during the pandemic-triggered recession.

But many economists believe the surge in homebuilding and sales during the past year may begin to slow, especially for single-family homes.

“We expect starts to mostly move sideways over the balance of 2021,” said Nancy Vanden Houten, lead economist for Oxford Economics. “Strong demand, a need for inventory and homebuilder optimism will keep a floor under activity, but builders continue to face supply constraints that may hamper or at least postpone construction.”

Increasing material prices and supply chain shortages were blamed for a drop in builder confidence this month. The National Association of Home Builders/Wells Fargo survey reported this week that builder confidence had declined two points to 81 in June, still a high level.

Building activity has been on a rollercoaster this year. The 3.6% overall gain in construction starts in May followed a 12.1% plunge in April, which followed a 19.2% surge in March that pushed housing starts to an annual rate of 1.73 million units, the fastest pace since the housing boom of the mid-2000s.

For May, the 3.6% increase reflected a 4.2% increase in single-family home construction to a rate of 1.1 million units and a 4% increase in construction of apartments, which climbed to a rate of 465,000 units.

By region, housing construction fell a sharp 22.4% in the Northeast but rose in every other region. The gains were led by a 29.9% increase in the Midwest. Construction increased 3.8% in the South and 1% in the West.

The National Association of Realtors released a report Wednesday contending there was an “underbuilding gap” of between 5.5 million and 6.8 million housing units because of decades of under-investment in home construction.

Growth in the nation’s housing inventory has slowed significantly since the turn of the century with every region of the country being affected, the report said.

“The state of America’s housing stock … is dire with a chronic shortage of affordable and available homes,” the report said, recommending that officials work to remove barriers to new development.

Spokesman-Review staff writer Thomas Clouse contributed to this report.