December 19, 2023 – 6:53 AM PST
WASHINGTON (Reuters) – U.S. single-family homebuilding surged to more than a 1-1/2-year high in November and could gain further momentum, with declining mortgage rates and incentives from builders likely to draw potential buyers back into the housing market.
The report from the Commerce Department on Tuesday also showed permits for future construction of single-family housing last month increased to the highest level since May 2022. A jump in mortgage rates had dampened new construction activity in recent months. The new housing market remains underpinned by an acute shortage of previously owned homes available for sale.
“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,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
Single-family housing starts, which account for the bulk of homebuilding, jumped 18.0% to a seasonally adjusted annual rate of 1.143 million units last month, the Commerce Department’s Census Bureau said. That was the highest level since April 2022.
Activity was also likely supported by warmer temperatures and dry conditions. Data for October was revised slightly lower to show starts rising to a rate of 969,000 units instead of the previously reported 970,000 units.
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, according to data from mortgage finance agency Freddie Mac. It has tumbled from a 23-year high of 7.79% in late October, tracking the decline in U.S. Treasury yields.
The Federal Reserve held interest rates steady last week and signaled in new economic projections that the historic tightening of monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.
A survey on Monday showed 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 0.7% to a pace of 976,000 units last month, the highest in 1-1/2 years. The strength in housing starts and permits bodes well for residential investment, which rebounded in the third quarter after nine straight quarterly decreases.
It could prompt economists to upgrade their gross domestic product growth estimates for the fourth quarter, which currently range 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 anticipated slowdown in growth this quarter is likely to reflect moderate consumer spending as well as drags from inventories and a wider trade deficit.
Starts for housing projects with five units or more rose 8.9% to a rate of 404,000 units in November. Activity is, however, moderating as builders work through a large stock of apartment buildings under construction.
Demand for rental accommodation is also cooling, with the rental vacancy rate rising to more than a two-year high in the third quarter. Increased supply of rental housing is one of the main factors expected to drive inflation lower next year.
Multi-family building permits dropped 9.6% to a rate of 435,000 units last month.
Overall housing starts soared 14.8% to a rate of 1.560 million units in November. Economists polled by Reuters had forecast starts would fall to a rate of 1.360 million units from the previously reported 1.372 million units.
Building permits as a whole fell 2.5% to a rate of 1.460 million units last month.
Reporting by Lucia Mutikani; Editing by Paul Simao