The US housing market showed signs of renewed strength in August, with new construction of single-family homes experiencing a notable surge. This positive development comes amid a downward trend in mortgage rates and the anticipation of the Federal Reserve’s first interest rate cut in four years, potentially slated for Wednesday.
According to Commerce Department data released on Wednesday, single-family housing starts in August reached an annualized rate of 992,000 units, marking a substantial 15.8% increase from the revised July figure of 857,000 units. This upward trend extended to all privately-owned housing starts, which reached an annualized rate of 1.356 million units in August, representing a 9.6% increase from the revised July estimate of 1.237 million units and a 3.9% increase from the August 2023 rate of 1.305 million units.
While new construction is on the rise, single-family housing completions in August registered a 5.6% decline from July’s revised rate, reaching an annualized rate of 1.029 million units. Despite this slight decrease, completions for all privately-owned homes in August showed a more positive picture, reaching a seasonally adjusted annual rate of 1.788 million, representing a 9.2% increase from the July revised estimate of 1.637 million and a significant 30.2% increase from the August 2023 rate of 1.373 million units.
Further evidence of a buoyant housing market is evident in building permits, which also saw an increase last month. Single-family authorizations in August reached a rate of 967,000, representing a 2.8% increase from the revised July figure of 941,000. Building permits for privately-owned housing units in August were at a seasonally adjusted annual rate of 1,475,000, indicating a 4.9% increase from the July revised rate of 1,406 million, though slightly below the August 2023 rate of 1,578 million.
The recent decline in mortgage rates appears to be a driving force behind this positive trend in home construction. The average rate for 30-year mortgages dropped 14 basis points in the week ending September 13, settling at 6.15%, marking the lowest rate since September 2022, according to the Mortgage Bankers Association. This decline in mortgage rates, coupled with the anticipated Federal Reserve rate cut, is making homeownership more attractive for potential buyers. The Federal Reserve is expected to lower its key interest rate, currently ranging from 5% to 5.25%, by either 25 or 50 basis points on Wednesday, marking its first rate decline in four years.
While the positive trend in home construction is encouraging, it remains to be seen whether this momentum will sustain itself in the coming months. The housing market is a complex ecosystem, influenced by various factors beyond mortgage rates and interest rates. However, the current indicators suggest a potential resurgence in the market, which could contribute to broader economic growth.
