US single-family housing starts surge to highest level in over 18 months
December 19, 2023 – 6:53 AM PST
U.S. single-family homebuilding surges to a 1-1/2-year high in November and the momentum is expected to continue. With declining mortgage rates and incentives from builders, potential buyers are being drawn back into the housing market.
The Commerce Department’s report on Tuesday revealed that permits for future construction of single-family housing reached the highest level since May 2022. The recent increase in mortgage rates had slowed down new construction activity, but the shortage of previously owned homes available for sale is still driving the demand for new housing.
Conrad DeQuadros, senior economic advisor at Brean Capital in New York, stated, “New residential construction activity continues to show resilience, and this is likely the result of an underlying shortage of housing units relative to the demand for housing.”
The Commerce Department’s Census Bureau reported that single-family housing starts, which make up the majority of homebuilding, rose by 18.0% to a seasonally adjusted annual rate of 1.143 million units in November. This is the highest level since April 2022.
Warmer temperatures and dry conditions also contributed to the increase in activity. October’s data was slightly revised to show starts rising to a rate of 969,000 units instead of the previously reported 970,000 units.
While single-family homebuilding soared in the Northeast, Midwest, and the densely populated South, it declined in the West.
The rate on the popular 30-year fixed mortgage averaged 6.95% last week, the lowest level since August, from 7.03% in the prior week. This decline in mortgage rates is in line with the decrease in U.S. Treasury yields.
The Federal Reserve’s decision to hold interest rates steady and the anticipation of lower borrowing costs in 2024 have also contributed to the positive outlook for the housing market.
A survey conducted on Monday showed that confidence among single-family builders rebounded from an 11-month low in December. The National Association of Home Builders noted that “many builders continue to reduce home prices to boost sales.”
BUILDING PERMITS RISE
Permits for future construction of single-family homes increased by 0.7% to a pace of 976,000 units last month, the highest in 1-1/2 years. This increase in housing starts and permits is a positive sign for residential investment, which saw a rebound in the third quarter after nine consecutive quarterly decreases.
Economists may revise their gross domestic product growth estimates for the fourth quarter, as the current range is from as low as a 1.0% annualized rate to as high as a 2.6% pace. The economy grew at a 5.2% rate in the third quarter. The expected slowdown in growth this quarter is likely to be influenced by moderate consumer spending, inventories, and a wider trade deficit.
In November, starts for housing projects with five units or more rose by 8.9% to a rate of 404,000 units. However, activity is moderating as builders work through a large stock of apartment buildings under construction.
Demand for rental accommodation is also cooling, as the rental vacancy rate rose to a two-year high in the third quarter. The increased supply of rental housing is expected to contribute to lower inflation next year.
On the other hand, multi-family building permits dropped by 9.6% to a rate of 435,000 units last month.
Overall, housing starts soared by 14.8% to a rate of 1.560 million units in November. Building permits as a whole fell by 2.5% to a rate of 1.460 million units last month.
Reporting by Lucia Mutikani; Editing by Paul Simao
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How are declining mortgage rates impacting the demand for new housing?
U.S. single-family homebuilding surged to a 1-1/2-year high in November, indicating that the housing market is experiencing a positive momentum. This growth can be attributed to declining mortgage rates and incentives from builders, which are drawing potential buyers back into the market.
The Commerce Department’s report on Tuesday revealed that permits for future construction of single-family housing reached the highest level since May 2022. Despite a recent increase in mortgage rates, the shortage of previously owned homes available for sale is still driving the demand for new housing.
Conrad DeQuadros, senior economic advisor at Brean Capital in New York, stated, “New residential construction activity continues to show resilience, and this is likely the result of an underlying shortage of housing units relative to the demand for housing.”
The Commerce Department’s Census Bureau reported that single-family housing starts, which make up the majority of homebuilding, rose by 18.0% to a seasonally adjusted annual rate of 1.143 million units in November. This is the highest level since April 2022.
Warmer temperatures and dry conditions also contributed to the increase in activity. October’s data was slightly revised to show starts rising to a rate of 969,000 units instead of the previously reported 970,000 units.
While single-family homebuilding soared in the Northeast, Midwest, and the densely populated South, it declined in the West.
The rate on the popular 30-year fixed mortgage averaged 6.95% last week, the lowest level since August, from 7.03% in the prior week. This decline in mortgage rates is in line with the decrease in U.S. Treasury yields.
The Federal Reserve’s decision to hold interest rates steady and the anticipation of lower borrowing costs in 2024 have also contributed to the positive outlook for the housing market.
A survey conducted on Monday showed that confidence among single-family builders rebounded from an 11-month low in December. The National Association of Home Builders noted that “many builders continue to reduce home prices to boost sales.”
Permits for future construction of single-family homes increased by 0.7% to a pace of 976,000 units last month, the highest in 1-1/2 years. This increase in housing starts and permits is a positive sign for residential investment, which saw a rebound in the third quarter after nine consecutive quarterly decreases.
Economists may revise their gross domestic product growth estimates for the fourth quarter, as the current range is from as low as a 1.0% annualized rate to as high as a 2.6% pace. The economy grew at a 5.2% rate in the third quarter. The expected slowdown in growth this quarter is likely to be influenced by moderate consumer spending, inventories, and a wider trade deficit.
In November, starts for housing projects with five units or more rose by 8.9% to a rate of 404,000 units. However, activity is moderating as builders work through a large stock of apartment buildings under construction.
Demand for rental accommodation is also cooling, as the rental vacancy rate rose to a two-year high in the third quarter. The increased supply of rental housing is expected to contribute to lower inflation next year.
On the other hand, multi-family building permits dropped by 9.6% to a rate of 435,000 units last month.
Overall, housing starts soared by 14.8% to a rate of 1.560 million units in November. Building permits as a whole fell by 2.5% to a rate of 1.460 million units last month.
In conclusion, the U.S. single-family homebuilding industry is experiencing a significant surge in activity. With declining mortgage rates, incentives from builders, and a shortage of previously owned homes, potential buyers are being drawn back into the market. This positive momentum is expected to continue, providing a boost to the overall housing market and the economy as a whole.
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