US Housing Starts Increase to Fastest Pace Since April

(Bloomberg) -- US housing starts bounced back in August after tumbling a month earlier, illustrating uneven residential construction as builders weigh inventory levels against brighter demand prospects tied to falling borrowing costs.

Beginning home construction increased 9.6% last month to a 1.36 million annualized rate, the fastest since April, according to government figures released Wednesday. The median estimate of economists surveyed by Bloomberg called for a 1.32 million rate.

The report showed overall building permits, a gauge of future construction, rose 5% to a 1.48 million annualized rate, while single-family authorizations increased to a four-month high.

New construction of single-family homes increased nearly 16% to an annualized 992,000 pace, the first monthly advance since February. Starts of multifamily projects declined for the first time since May.

Builders are awaiting a sustained pickup in demand to help work down an inventory of unsold homes that’s hovering near the highest level since 2008. At the same time, mortgage rates have fallen to the lowest level since 2022 on expectations the Federal Reserve will ease monetary policy. That’s seen underpinning sales and helping to chip away at inventory.

Still, it will take time to deliver consistent increases in residential construction. While homebuilding contributed to economic growth in the second half of 2023 and the start of this year, it’s seen reducing third-quarter gross domestic product by 0.3 percentage point, the Atlanta Fed’s GDPNow forecast showed before the latest starts data. 

In anticipation of an improving housing market, investors have favored shares of US builders. The iShares US Home Construction exchange traded fund is up about 20% over the last three months and at a record high.

Starts jumped 15.5% in the South, a month after Hurricane Beryl led to the slowest pace of construction in the region since mid-2020. Homebuilding in August also rose in the Midwest and West.

What Bloomberg Economics Says...

“We think the elevated stock of new homes for sale will keep homebuilders cautious in the near term, leaving housing starts on a declining trend. The interest-rate pivot from the Fed could reinvigorate construction activity, but we only expect a sustained march higher after affordability improves.”

— Stuart Paul, economist

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Completions of new single-family homes declined 5.6% to the slowest pace since March. Multifamily completions jumped.

The housing starts data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 1.8% decline to a 21% gain. 

On Thursday, the National Association of Realtors will issue August data on existing-home sales. Unlike new housing, the resale market has been restrained by a lack of inventory.

--With assistance from Chris Middleton and Cécile Daurat.

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