Home Blog Uncategorized US Housing Starts Climb, Backed by Limited Supply
US Housing Starts Climb, Backed by Limited Supply

US Housing Starts Climb, Backed by Limited Supply

In October, the U.S. witnessed a slight increase in single-family homebuilding, yet the foreseeable activity might sustain a moderate pace due to escalated mortgage rates. The surge in mortgage rates led to a substantial decline in homebuilder confidence, plunging to an 11-month low in November.

Despite this, the construction sector continues to be upheld by an acute shortage of available homes in the market. The recent Commerce Department report highlighted a surge in permits for future single-family homebuilding, reaching nearly 1-1/2 year highs last month. Moreover, the rebound in residential investment during the third quarter marked an end to nine consecutive quarters of decline. Recognizing the current scarcity in available homes, Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina, indicated the potential for homebuilders to leverage this situation. He anticipates an upturn in residential real estate demand if mortgage rates decrease in the latter half of the upcoming year.

The Commerce Department’s Census Bureau reported a 0.2% rise in single-family housing starts to a seasonally adjusted annual rate of 970,000 units last month. The Northeast and West regions witnessed a significant surge of 12.0% and 12.3%, respectively, while the South and Midwest observed declines of 4.9% and 0.9%, respectively.

Home builders’ confidence took a hit this month according to a survey by the National Association of Home Builders, with expectations of lower sales over the next six months, particularly due to mortgage rates lingering above 7% since mid-August, as mentioned by Ben Ayers, a senior economist at Nationwide in Columbus, Ohio.

The 30-year fixed mortgage rate averaged 7.79% in late October, its highest since November 2000. Subsequently, it receded to 7.44% this week after signs of cooling in the labor market, with prospects of further reductions in the upcoming weeks due to the declining yield on the benchmark 10-year Treasury note.

The construction of housing projects with five or more units surged by 4.9% to a rate of 382,000 units in October. However, the multi-family housing segment faces constraints due to a substantial ongoing construction inventory and a rising rental vacancy rate in the third quarter.

While there’s an optimistic expectation of inflation slowing in 2024 owing to a significant increase in multifamily housing supply, there remains a shortfall in housing starts and completion rates required to bridge the inventory gap, suggesting a continued demand for new construction.

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