US housing starts rise moderately; tight supply supporting new
construction
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[November 18, 2023] By
Lucia Mutikani
WASHINGTON (Reuters) - U.S. single-family homebuilding increased
marginally in October and activity could remain moderate in the near
term amid higher mortgage rates, which sent homebuilder confidence
tumbling to an 11-month low in November.
Nevertheless, new construction remains supported by an acute shortage of
houses on the market, with the report from the Commerce Department on
Friday showing permits for future single-family homebuilding rising to
the highest level in nearly 1-1/2 years last month. Residential
investment rebounded in the third quarter, ending nine straight quarters
of decline.
"Homebuilders have an opportunity to capitalize on the low supply of
homes on the market," said Jeffrey Roach, chief economist at LPL
Financial in Charlotte, North Carolina. "If mortgage rates move lower in
the latter half of next year, we could see some improved demand for
residential real estate."
Single-family housing starts, which account for the bulk of
homebuilding, rose 0.2% to a seasonally adjusted annual rate of 970,000
units last month, the Commerce Department's Census Bureau said. Data for
September was revised up to show starts rising to a rate of 968,000
units instead of 963,000 units as previously reported. Single-family
homebuilding peaked in May.
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Starts surged 12.0% in the Northeast and increased 12.3% in the West,
but dropped 4.9% in the densely populated South and fell 0.9% in the
Midwest, which is generally considered the most affordable housing
region.
A survey on Thursday showed confidence among home builders slumped this
month. The National Association of Home Builders noted that builders
anticipated lower sales over the next six months, with mortgage rates
stuck above 7% since mid-August.
"This suggests that building activity could decline over the winter,
especially with loan rates for builders continuing to rise," said Ben
Ayers, a senior economist at Nationwide in Columbus, Ohio.
The rate on the popular 30-year fixed mortgage averaged 7.79% in late
October, the highest since November 2000, according to data from
mortgage finance agency Freddie Mac. It has since retreated following
data this month showing the labor market cooling, and averaged a
still-high 7.44% this week.
Mortgage rates could grind lower in the weeks ahead as the yield on the
benchmark 10-year Treasury note has declined in the wake of
inflation-friendly economic data that have left financial markets
anticipating an interest rate cut from the Federal Reserve next spring.
U.S. Treasury prices were higher on Friday, with the 10-year yield
briefly dropping to a two-month low. The dollar slipped against a basket
of currencies. Stocks on Wall Street fell.
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![](../images/111823PIX/busine67.jpg)
A house-for-sale sign is seen inside the Washington DC Beltway in
Annandale, Virginia January 24, 2016. REUTERS/Hyungwon
Kang/Files/File Photo
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HUGE MULTI-FAMILY BACKLOG
Starts for housing projects with five units or more jumped 4.9% to a
rate of 382,000 units in October. With a huge stock of multi-family
housing under construction and the rental vacancy rate hitting a
2-1/2 high in the third quarter, there is little room for major
gains for this housing segment.
Higher rents have played a big part in boosting inflation well above
the Fed's 2% target and the large supply of multi-family housing in
the pipeline is expected to significantly help tame underlying price
pressures next year.
"The big wave of multifamily supply headed toward the rental market
increases our conviction that core inflation will slow in 2024,
allowing the Fed to reduce interest rates," said Bill Adams, chief
economist at Comerica Bank in Dallas.
Overall housing starts rose 1.9% to a rate of 1.372 million units in
October. Economists polled by Reuters had forecast starts slipping
to a rate of 1.350 million units.
Permits for future construction of single-family homes rose 0.5% to
a rate of 968,000 units last month, the highest level since May
2022. The increase was concentrated in the Northeast and West.
Permits declined in the South and Midwest.
Multi-family building permits rebounded 2.2% to a rate of 469,000.
Building permits as a whole increased 1.1% to a rate of 1.487
million units last month.
The number of houses approved for construction that are yet to be
started rose 1.8% to 281,000 units.
The single-family homebuilding backlog was unchanged at 140,000
units for the third straight month, with the completions rate for
this segment dropping 0.9% to 993,000 units.
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Realtors estimate that housing starts and completion rates need to
be in a range of 1.5 million to 1.6 million units per month to
bridge the inventory gap.
The number of housing under construction dipped 0.1% to a rate of
1.674 million units. The inventory of single-family housing under
construction declined 0.6% to a rate of 669,000 units, the lowest
level since May 2021.
The stock of multi-family housing under construction edged up 0.1%
to 987,000 units, not far from recent record highs.
"Our view that the supply of second-hand homes on the market will
remain limited over the next two years means demand will continue to
be diverted to new builds," said Thomas Ryan, property economist at
Capital Economics.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Nick
Zieminski)
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