US Housing Starts Surge in Boost to Economy
US Single-Family Homebuilding Surges Amid Housing Shortage
WASHINGTON—In a remarkable display of resilience, single-family homebuilding in the US soared in July, accompanied by a rise in permits for future construction. This surge comes at a time when the market is grappling with a shortage of previously owned houses. However, the housing market’s progress may face a hurdle as mortgage rates climb back to near two-decade highs.
The Commerce Department reported a sharp rebound in groundbreaking on single-family housing units, defying predictions of a recession. This positive news follows the strong growth in retail sales in July, prompting economists to revise their growth estimates for the third quarter.
Economists believe that, with inflation retreating, the recent stream of positive data is unlikely to lead to another interest rate hike next month.
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“Housing generally has shown resilience, but Fed officials may overlook this latest news of strengthening demand in the economy when it comes to judging whether to hike rates again this year because of the progress made on the inflation front,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
Single-family housing starts, which account for the majority of homebuilding, jumped 6.7 percent to a seasonally adjusted annual rate of 983,000 units in July. Year-on-year, they rose by 9.5 percent. The West saw the largest increase in groundbreaking, with single-family starts soaring by 28.5 percent.
The Midwest also experienced a significant rise of 12.5 percent in starts. However, the Northeast and the densely populated South saw declines of 3.4 percent and 1.3 percent, respectively.
After enduring the impact of the Federal Reserve’s aggressive monetary policy tightening, the housing market has stabilized. However, the recent increase in mortgage rates is expected to limit further improvement.
According to the latest data from mortgage finance agency Freddie Mac, the average rate on the popular 30-year fixed mortgage has risen to 6.96 percent in recent weeks. This rate is approaching the highest level since April 2002, which was 7.08 percent.
The rise in mortgage rates has led to a decrease in confidence among homebuilders in August. The National Association of Home Builders reported that more builders are offering incentives to attract buyers, anticipating lower sales.
Since March 2022, the Federal Reserve has raised its benchmark overnight interest rate by 525 basis points to the current range of 5.25 percent to 5.50 percent. Demand for rental accommodation, driven by higher mortgage rates sidelining potential home buyers, is slowing down. Additionally, there is a record number of multi-family housing units under construction.
Overall, housing starts increased by 3.9 percent to a rate of 1.452 million units in July, slightly surpassing economists’ expectations.
“The need for new single-family homes, driven by the scarcity of existing home inventory, should provide support for single-family construction,” said Nancy Vanden Houten, U.S. lead economist at Oxford Economics in New York. “Homebuilders increased their use of incentives again in August, which may support sales and prevent a steep decline in single-family starts.”
Permits for future construction of single-family homes rose by 0.6 percent in July to a rate of 930,000 units. This marks the sixth consecutive month of permit increases, driven by rises in the Midwest and South. However, permits for single-family building fell in the Northeast and remained unchanged in the West.
Permits for housing projects with five units or more fell by 0.2 percent to a rate of 464,000 units, reaching the lowest level since October 2020. Overall building permits edged up by 0.1 percent to a rate of 1.442 million units last month.
Stocks on Wall Street saw gains, while the dollar remained steady against a basket of currencies. U.S. Treasury prices also rose.
Tight Supply
Despite the increase in starts, the housing supply is expected to remain tight. The number of houses approved for construction but yet to be started decreased by 0.4 percent to 277,000 units in July.
The backlog for single-family homebuilding dropped by 0.7 percent to 140,000 units, while the completion rate for this segment increased by 1.3 percent to a rate of 1.018 million units. Overall housing completions decreased by 11.8 percent to a rate of 1.321 million units.
The inventory of single-family housing under construction fell by 0.7 percent to a rate of 678,000 units.
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