- Housing starts up 12.2% in August
- Single family homes up 3.4%; Apartment buildings increased by 28.6%
- Building permits fall 10.0%; Single family home down 3.5%
WASHINGTON, Sept 20 (Reuters) – US housing construction unexpectedly picked up in August as rising rents pushed multifamily construction to the highest level in more than 36 years, but rising mortgage rates and high prices undercut the overall housing market.
Tuesday’s Commerce Department report showed permits for future housing construction have fallen to levels last seen during the first wave of the COVID-19 pandemic in spring 2020. Housing construction is also being hampered by ongoing supply chain shortages, which are raising the prices of materials.
The US Federal Reserve’s aggressive monetary tightening has significantly weakened the housing market. In contrast, other sectors of the economy, such as the labor market, have proven incredibly resilient despite the Fed’s attempts to dampen demand.
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“As the Fed signals it won’t stop raising rates until it tames inflation, the housing market will remain weak, with the potential for it to experience its own recession,” said Ryan Sweet, senior economist at Moody’s Analytics in New York. “This is not entirely bad news as the housing market has been red hot.”
Housing starts rebounded 12.2% last month to a seasonally adjusted annualized rate of 1.575 million units. July data has been revised down to a rate of 1.404 million units from the previously reported 1.446 million units. Last month’s broad rise was also due to progress home builders were making in clearing the backlog as some materials became more readily available.
Economists polled by Reuters had forecast launches at a rate of 1.445 million units. Housing starts fell 0.1% yoy in August.
Housing starts for housing projects of five units or more rose 28.6% to 621,000 units, the highest since April 1986.
Multifamily construction is being fueled by strong demand for rental housing, with rising borrowing costs pushing homeownership out of the reach of many Americans. A key measure of rents, according to the latest consumer price data, rose 6.3% year-on-year in August, the fastest since April 1986.
Single-family housing starts, which account for the largest share of residential construction, rose 3.4% to 935,000 units after falling every month since March. Single-family home construction increased in the Midwest, the populous South, and the West, but declined in the Northeast.
Wall Street stocks traded lower as investors anticipated another outsized rate hike from the Fed on Wednesday. The dollar rose against a basket of currencies. US Treasury bond prices fell.
MORTGAGE INTEREST AT THE AMOUNT
The US Federal Reserve is expected to hike interest rates by 75 basis points for the third time in as many policy meetings. Since March, the Fed has raised this rate from near zero to its current range of 2.25% to 2.50%.
Mortgage rates have risen even higher. The interest rate on 30-year fixed-rate mortgages averaged 6.02% last week, up from 5.89% the previous week, breaking the 6% mark for the first time since November 2008, according to data from mortgage financing agency Freddie Mac .
Future housing permits fell 10.0% to a rate of 1.517 million units, the lowest since June 2020. Single-family home building permits fell 3.5% to a rate of 899,000 units, the lowest since June 2020. Approvals for five-unit housing projects fell 18.5% to 571,000 units.
Economists expect spending on housing to contract further this quarter after falling the most in two years in the April-June quarter. Weak home investment contributed to the second consecutive quarterly contraction in gross domestic product during this period.
A survey Monday showed the National Association of Home Builders/Wells Fargo Housing Market sentiment index fell for the ninth straight month in September. The survey found that nearly a quarter of homebuilders reported a reduction in home prices and more than half offered sales promotion incentives, including mortgage rate buybacks and free amenities. Continue reading
However, an outright slump in the housing market is unlikely due to the acute shortage of single-family homes for sale. Real estate agents estimate that the United States was missing about 5 million homes before the COVID-19 pandemic.
Although home price inflation has slowed, fewer homes are being built due to financial constraints, suggesting the pace may be moderate. That could baffle the Fed, which is trying to lower house prices by slowing demand for homes.
The number of homes approved for construction but not yet started fell by 2.7% to 290,000 units. The inventory of single-family homes fell 3.4% to 143,000 units, but the completion rate for this segment rose 0.4% to a rate of 1.017 million units.
The stock of single-family homes under construction fell by 0.4% to 812,000 million units. Builders are likely to refrain from applying for new permits while they work off their backlogs.
“These homes need to be started, and as new demand slows, builders can ‘catch up’ on delayed housing starts,” said Isfar Munir, an economist at Citigroup in New York. “This can potentially support housing construction even if permits continue to fall, at least in the short term.”
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Reporting by Lucia Mutikani; Edited by Paul Simao
Our standards: The Thomson Reuters Trust Principles.