US housing starts, building permits hit 12-year high
WASHINGTON: US homebuilding surged to more than a 12-year high in August as both single- and multi-family housing construction increased, suggesting that lower mortgage rates were finally providing a boost to the struggling housing market.
The report from the Commerce Department yesterday also showed permits for future home construction rose to levels last seen in 2007. It added to upbeat data on retail sales that have pointed to an economy that is continuing to grow moderately rather than flirting with a recession as has been flagged by financial markets.
The Federal Reserve was expected to cut interest rates again yesterday to keep the longest economic expansion in history, now in its 11th year, on track. A year-long trade war between the United States and China has dimmed the economy’s outlook. The US central bank lowered borrowing costs in July for the first time since 2008.
“A prolonged period of lower mortgage rates has perhaps finally encouraged prospective homebuyers to get off the sidelines,” said John Pataky, executive vice president at TIAA Bank in Jacksonville, Florida. “I’d like to see a couple more months of data like this before I’m convinced the market’s fortunes have really changed.”
Housing starts jumped 12.3 percent to a seasonally adjusted annual rate of 1.364 million units last month, the highest level since June 2007, the government said. Data for July was revised up to show homebuilding falling to a pace of 1.215 million units, instead of decreasing at a rate of 1.191 million units as previously reported. Economists polled by Reuters had forecast housing starts would advance to a pace of 1.250 million units in August. Building permits increased 7.7 percent to a rate of 1.419 million units in August, the highest level since May 2007.
Housing starts rose 6.6 percent on a yearon-year basis in August. The housing market, the most sensitive sector to interest rates, had until now shown little signs of benefiting from the Fed’s monetary policy easing, which has pushed down mortgage rates from last year’s multi-year highs.
Economists and builders had blamed the lackluster performance on land and labor shortages. A survey on Tuesday showed confidence among homebuilders edged up in September, with builders reporting solid demand for homes. Builders, however, said they “continue to grapple with ongoing supply-side challenges that hinder housing affordability, including a shortage of lots and labor.” They also noted that the US-China trade tensions, which have undercut manufacturing, were “holding back home construction in some parts of the nation.”
The 30-year fixed mortgage rate has dropped more than 130 basis points to an average of 3.56 percent, according to data from mortgage finance agency Freddie Mac.
Solid demand for loans
A separate report yesterday from the Mortgage Bankers Association showed applications for loans to purchase a home increased 6 percent last week from the prior week. That was the third straight weekly rise in purchase loan applications. US stock index futures were little changed and the dollar held gains against a basket of currencies after the release of the data, as investors awaited the Fed’s decision and statement on interest rates. Prices of US Treasuries were trading higher.
Residential investment has contracted for six straight quarters, the longest such stretch since the 2007-2009 recession. The Atlanta Fed is forecasting gross domestic product to rise at a 1.8 percent annualized rate in the third quarter. The economy grew at a 2.0 percent rate in the April-June quarter, decelerating from the first quarter’s 3.1 percent pace.