United States Housing Starts Surge in Boost to Economy

U.S. single-family homebuilding surged in July and permits for future construction rose amid an acute shortage of previously owned houses.

According to Reuters, single-family housing starts, which account for the bulk of homebuilding, jumped 6.7% to a seasonally adjusted annual rate of 983,000 units last month. They rose 9.5% year-on-year in July. The increase in groundbreaking was led by the West, where single-family starts soared 28.5%.

Starts rose 12.5% in the Midwest. But they fell 3.4% in the Northeast and declined 1.3% in the densely populated South.

After being pummeled by the Federal Reserve’s aggressive monetary policy tightening, the housing market has stabilized. Further improvement, however, looks likely to be curtailed by the renewed increase in mortgage rates.

The average rate on the popular 30-year fixed mortgage has risen to 6.96% over the past weeks, according to latest data from mortgage finance agency Freddie Mac. The rate is within striking distance of the 7.08% seen in late October and early November, which was the highest since April 2002.

Mortgage rates near 7% were attributed to the ebb in confidence among homebuilders in August, with the National Association of Home Builders saying more builders were offering incentives to attract buyers amid expectations of lower sales.

The Fed has since March 2022 raised its benchmark overnight interest rate by 525 basis points to the current 5.25% to 5.50% range. Starts for housing projects with five units or more were unchanged at a rate of 460,000 units in July. Demand for rental accommodation, largely driven by higher mortgage rates sidelining some potential home buyers, is slowing. There is also a record stock of multi-family housing under construction.

Overall housing starts increased 3.9% to a rate of 1.452 million units in July. Economists polled by Reuters had forecast starts rising to a rate of 1.448 million units.