Surge in Single-Family Housing Starts Fuels US Economic Optimism

Summary

  • The Commerce Department in a recent report suggests that permits for future construction of single-family homes have increased to their highest since May 2022.
  • Economists have increased their estimates for fourth-quarter gross domestic product (GDP) growth, stating that the housing market contributes to preventing a recession next year.
  • Single-family housing starts jump 18.0% to a seasonally adjusted annual rate of 1.143 million units.
  • Building permits indicate future constructions have risen 0.7% to a pace of 976,000 units in the last month.

Insights from the Commerce Department’s Report

The Commerce Department disclosed on Tuesday that permits for the future construction of single-family housing last month rose to their highest level since May 2022, continuing a trend despite the recent rise in mortgage rates that had previously slowed new construction activity. The consistent housing market is still reinforced by the limited availability of previously owned homes for sale.

Economists have now increased their estimates for fourth-quarter gross domestic product (GDP) growth and predict that the housing market will contribute significantly in averting a potential recession next year.

Bill Adams’ Views on the Current Housing Market

Bill Adams, the chief economist at Comerica (NYSE:) Bank in Dallas, believes that the demand for American housing has grown permanently since the pandemic. With lower long-term interest rates, the builders will provide more supply to satisfy the increasing demand, stimulating economic growth.

Highlights from The Commerce Department’s Census Bureau

The Commerce Department’s Census Bureau reported that single-family housing starts, responsible for the majority of homebuilding, climbed 18.0% to an annual rate of 1.143 million units last month. This is marked as their highest level since April 2022. Mild temperatures and dry conditions likely supported this activity.

Data revision for October shows single-family starts increased to a rate of 969,000 units. In November, starts surged 42.2% year-on-year. Homebuilding rose in the Northeast, Midwest, and densely populated South, but declined in the West.

Impact on Rental Housing and the Overall Economy

The demand for rental housing seems to be dropping, with the rental vacancy rate rising to over a two-year high in the third quarter. A rise in the supply of rental housing is one significant factor expected to lower inflation next year.

The number of dwellings approved for construction that have not been started yet reduced by 2.5% to 276,000 units. The backlog of single-family houses slumped 4.2% to 136,000 units, the lowest since May. The completion rate for the sector was 3.2% down to 960,000 units.

However, overall housing completions climbed 5% to a rate of 1.447 million units. The total inventory of single-family homes under construction rose 1.9% to a rate of 680,000 units.

This housing market trend impacts forex or trading, says Jay Hawkins (NASDAQ:), a senior economist at BMO Capital Markets in Toronto. Specifically, it may influence investments in the relevant real estate assets and treasury yields.

PIP Penguin
Logo