US single-family housing starts surge; building permits rise moderately

WASHINGTON (Reuters) – U.S. single-family homebuilding rebounded sharply in August, but a moderate increase in building permits suggested that the momentum was unlikely to be sustained against the backdrop of a rising supply of new homes on the market.

The jump in single-family housing starts reported by the Commerce Department on Wednesday probably reflected the fading drag from Hurricane Beryl, which had depressed homebuilding in the South, mostly in Texas. Homebuilders could also face a challenge from increasing inventory of previously owned homes for sale, with the Federal Reserve expected to cut interest rates on Wednesday for the first time since 2020. 

Many home owners have mortgage rates below 4% and higher mortgage rates had deterred many from listing their houses. The so-called “rate lock” starved the housing market of supply, creating an opportunity for builders.

“A renewed dip in single-family construction activity is likely over the next few months as homebuilders seem to have responded too aggressively to the slight upturn in new home sales in 2023, and are now left with an excessive level of inventory,” said Oliver Allen, senior U.S. economist atPantheon Macroeconomics. “Lower mortgage rates will help boost demand for new homes at the margin.”

Single-family housing starts, which account for the bulk of homebuilding, surged 15.8% to a seasonally adjusted annual rate of 992,000 units last month, the Commerce Department’s Census Bureau said. Data for July was revised higher to show starts at a rate of 857,000 units instead of the previously reported 851,000 pace. 

Single-family home building had declined for five straight months after a surge in mortgage rates in spring weighed on home sales, resulting in excess supply of newly built houses. 

Mortgage rates have since retreated to 1-1/2-year lows.   

A National Association of Home Builders survey on Tuesday showed homebuilder sentiment improved marginally in September after sliding for four consecutive months, but noted “builders will face competition from rising existing home inventory in many markets as the mortgage rate ‘lock-in’ effect softens with lower mortgage rates.”

MORE HOUSES ON THE MARKET

New housing supply is near levels last seen in early 2008. Permits for future construction of single-family homes increased 2.8% to a rate of 967,000 units in August.

Starts for housing projects with five units or more dropped 6.7% to a rate of 333,000 units in August. Overall housing starts jumped 9.6% to a rate of 1.356 million units. Economists polled by Reuters had forecast starts increasing to a rate of 1.310 million units.

Single-family starts vaulted 18.9% in the densely populated South, where activity was likely weighed down by Hurricane Beryl in July. Starts soared 47.4% in the Northeast and increased 11.6% in the Midwest, which is considered the most affordable region. Homebuilding rose 2.8% in the West. 

Single-family starts increased 5.2% from a year ago. 

Multi-family building permits rose 8.4% to a rate of 451,000 units. Building permits as a whole advanced 4.9% to a rate of 1.475 million units.

The number of houses approved for construction that were yet to be started increased 1.4% to 285,000 units. The single-family homebuilding backlog rose 2.8% to 148,000 units, the highest level since April 2020. The completions rate for that housing segment dropped 5.6% to 1.029 million units.

Overall housing completions increased 9.2% to a rate of 1.788 million units. The number of housing units under construction declined 1.9% to a rate of 1.509 million units, the lowest level since November 2021. 

The inventory of single-family housing under construction dipped 0.3% to a rate of 642,000 units. (This story has been refiled to add the missing word ‘time’ in paragraph 2, and to add a missing zero to 992,000 in paragraph 5)