The numbers: Construction on new houses jumped 12% in August as the multi-family market stabilized and mortgage rates dropped, despite an otherwise volatile month.
Housing starts increased to an annual rate of 1.36 million in August, up from a revised 1.22 million in July, according to the monthly report from the Commerce Department. Economists polled by MarketWatch had anticipated a 1.26 million rate for starts.
Permits to build additional homes, meanwhile, rose 8% to a seasonally-adjusted annual pace of 1.42 million from July’s 1.32 million. For permits, economists polled by MarketWatch expected a rate of 1.30 million.
Big picture: August’s new-home construction figures were released just as the Federal Open Market Committee appears poised to cut short-term interest rates. The Fed’s decision will likely be influenced by the same headwinds that home builders have faced. “Home builders have been wary of the potential impact from the trade war on potential buyers’ confidence,” Ian Shepherdson, chief economist at Pantheon Economics, wrote in a research note ahead of Wednesday’s data release.
But as the trade war and economic uncertainty were major hurdles, the housing market had one significant tailwind moving in its favor: Falling mortgage rates. The precipitous drop in mortgage rates throughout the summer has eased the affordability constraints that plagued many prospective home buyers in previous months.
With those people coming off the sidelines, demand for housing is likely to rebound in the months ahead. Builders will look to capitalize on that strong appetite in the months ahead by increasing permitting activity, Shepherdson predicted.
What they are saying? “Builders are pivoting their supply to help address entry-level demand, but scarce developable land in desirable locations met with high prices is making their job hard,” said Ali Wolf, director of economic research at Meyers Research Group. “Even with tight supply though, the new home market is on track for the best sales year since 2007.”
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