US home-building surged to more than a 12-year high in August as both single- and multi-family housing construction accelerated, suggesting that lower mortgage rates were finally providing a boost to the struggling housing market.
The report from the Commerce Department yesterday also showed permits for future home construction rose to levels last seen in 2007.
Housing and manufacturing have been the weak spots in the economy, which is now in its 11th year of expansion, the longest in history.
The jump in home-building activity last month added to strong retail sales data in suggesting the economy continues to grow moderately and is probably not flirting with a recession as has been flagged by financial markets.
A year-long trade war between the United States and China has dimmed the economic outlook.
The Federal Reserve is expected to cut interest rates again on Wednesday to blunt the hit on the economy from the trade tensions.
The US central bank lowered borrowing costs in July for the first time since 2008.
“A prolonged period of lower mortgage rates has perhaps finally encouraged prospective home-buyers to get off the sidelines,” said John Pataky, executive vice president at TIAA Bank in Jacksonville, Florida. “I’d like to see a couple more months of data like this before I’m convinced the market’s fortunes have really changed.”
Housing starts jumped 12.3% to a seasonally adjusted annual rate of 1.364mn units last month, the highest level since June 2007, the government said.
Data for July was revised up to show home-building falling to a pace of 1.215mn units, instead of decreasing at a rate of 1.191mn units as previously reported.
Economists polled by Reuters had forecast housing starts would advance to a pace of 1.250mn units in August.
Building permits increased 7.7% to a rate of 1.419mn units in August, the highest level since May 2007.
Housing starts rose 6.6% on a year-on-year basis in August.
The housing market, the most sensitive sector to interest rates, had until now shown few signs of benefiting from the Fed’s monetary policy easing, which has pushed down mortgage rates from last year’s multi-year highs.
Builders had blamed the lacklustre performance on land and labour shortages. A survey on Tuesday showed confidence among homebuilders rose in September, with builders reporting solid demand for homes.
But builders said scarce building lots and labour remained a challenge and also noted that trade tensions, which have undercut manufacturing, were “holding back home construction in some parts of the nation.”
The 30-year fixed mortgage rate has dropped more than 130 basis points to an average of 3.56%, according to data from mortgage finance agency Freddie Mac. Firmer demand for housing was underscored by a separate report yesterday from the Mortgage Bankers Association showing applications for loans to purchase a home increased for a third straight week last week.
The dollar was little changed against a basket of currencies as investors awaited the Fed’s decision and statement on interest rates.
Prices of US Treasuries rose. Stocks on Wall Street were trading lower after package delivery company FedEx warned that full-year earnings would miss analysts’ estimates because of the US-China trade war and the fallout from its split with customer-turned-competitor Amazon.com Inc. August’s robust home-building performance raised hopes that residential investment would rebound in the third quarter after contracting for six straight quarters, the longest such stretch since the 2007-2009 recession.
The Atlanta Fed lifted its third-quarter gross domestic product estimate by one-tenth of a percentage point to a 1.9% annualised rate.
The economy grew at a 2.0% rate in the April-June quarter, decelerating from the first quarter’s 3.1% pace.
Single-family home-building, which accounts for the largest share of the housing market, increased 4.4% to a rate of 919,000 units in August, the highest level since January.
Single-family housing starts increased in the West, Midwest and the populous South, but fell in the Northeast.
Permits to build single-family homes vaulted 4.5% to a rate of 866,000 units last month, the highest since July 2018.
Permits, however, continued to lag housing starts, suggesting limited scope for a strong rise in single-family home-building in the coming months. Starts for the volatile multi-family housing segment soared 32.8% to a rate of 445,000 units in August, reversing the prior two months’ declines.
Though rental inflation has slowed in recent months, economists do not expect the trend to continue as rental vacancy rates remain low. Permits for the construction of multi-family homes increased 13.3% to a rate of 553,000 units last month.
Despite the surge in both starts and permits in August, housing shortages will likely persist and keep prices elevated.
Housing completions rose 2.4% to 1.294mn units last month.
Realtors estimate that housing starts and completion rates need to be in a range of 1.5mn to 1.6mn units per month to close the inventory gap. The stock of housing under construction climbed 0.3% to 1.144mn units in August.
“The stock of new homes priced under $300,000, which is what half of new homebuyers need before they can afford a purchase, continues to be low,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “And the pace of home building remains significantly below historical averages.”
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