Reversing the trend of the past few months, the homebuilding market finally posted a substantial gain with new construction heading into August. With mortgage rates teasing a dip below the 6% mark and demand still fierce across the country, it seems rate cut excitement is allowing many to push past supply and cost challenges on the construction side.
According to the U.S. Census Bureau and U.S. Department of Housing and Urban Development, housing starts increased 9.6% in August to a seasonally adjusted annual rate of 1.36 million units compared to July’s 1.23 million. This (1.36 million) reflects the number of houses that would be started within a year if the market was to hold the current construction pace. It is 3.9% above August of last year.
Single-family starts specifically were up 15.8% to 992,000 compared to last month. On a YTD basis, single-family starts are up 10.4%. The multifamily sector, meanwhile, took a hit, decreasing 4.2% to 364,000 units.
More recently, the federal reserve has instituted its first rate cut since the pandemic, dropping interest rates by half a point and beginning the long-awaited easing process in monetary policy. This has caused mortgage rates to slip the lowest they have been since February 2023, according to Freddie Mac.
As of writing, the current weekly average for mortgage rates sits at 6.2 percent. Despite this, however, many experts still seeing housing affordability as being a key issue among consumers still dragging the housing market.
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“With the Federal Reserve expected to begin the first of a series of rate reductions today, the loosening monetary policy over the coming months will boost new home building by lowering the construction loan rates for builders,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, on Wednesday.
“The rise in single-family permits is further good news for the industry, which was hit hard by tight monetary policy in the first half of this year.”
Overall permits increased 4.9% to a rate of 1.48 million, while single-family permits increased 2.8% to a 967,000 rate. Multifamily permits also increased 9.2% to a 508,000 rate. Compared to last year, however, permits remain down 6.5%.
In their monthly survey, NAHB found that homebuilder sentiment was on the upswing as well, albeit marginally. For the past four months, homebuilding sentiment had been on the decline, but with the incoming rate cuts, it seems optimism is entering into the picture moving out of August. That said, NAHB notes that builders will still face competition from existing inventory in many markets as the lower mortgage rates incentivize more people to sell.
New housing supply is near levels last seen in 2008, with current levels holding about the 2018-2019 average. According to Fannie Mae, however, this rise in supply has mostly been in the Sun Belt and Mountain West regions, which also has experienced some of the most robust home construction.
Looking at monthly regional data, single-family housing starts rose 2.8% in the West, 11.6% in the Midwest, 18.9% in the south, and a staggering 47.4% in the Northeast. However, that percentage in the Northeast represents a jump of 57,000 to 84,000 while the South went from 460,000 to 547,000, showing the disparity in sheer volume occurring between regions, with the south seeing the highest gains in terms of raw housing volume.
Still looking at regional data, permits on single-family homes rose 2% in the West, 6% in the Midwest, 1.6% in the South, and 10.2% in the Northeast.
Single-family units under construction fell 0.3% to 642,000 units, while multifamily units under construction fell to 867,000.
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