Housing starts skyrocketed 21.7% between April and May, marking the fastest monthly growth since 2016, according to the US Census Bureau. With the Fed pausing rate hikes and mortgage rates trending lower, builders are capitalizing on renewed demand and low inventory levels. Read more on why you may soon see a boom in new construction in your city.
- Residential homebuilding soared last month as housing starts increased 21.7% from April levels.
- Housing starts — also known as new home construction — rose at the fastest monthly rate since 2016.
- As the Fed pauses its rate hikes, mortgage rates are trending lower and consumer sentiment is rising.
As higher mortgage rates discourage homeowners happy with their low, locked-in rates from moving, homebuilders are stepping up their construction efforts.
In May, residential homebuilding soared as housing starts — also known as new home construction — increased 21.7% from April levels, according to a report from the US Census Bureau that was released on Tuesday. The strength in starts was a shock to many analysts who had anticipated a more modest increase.
The over 1.6 million starts were vastly higher than the 1.4 million forecast by economists, according to Bloomberg.
“What we saw in May is that home builders broke ground on a lot of those permanent projects, and the backlog of planned projects went down as they moved forward,” Bill Adams, chief economist for Comerica Bank, told Insider. “That was a sign that the housing industry is still benefiting from the end of supply-side constraints, which is translating to the pickup in activity in May.”
Between April and May, housing starts rose by the fastest month-over-month rate since 2016. Single-family housing starts increased 18.5% to a seasonally adjusted annualized rate of 997,000 and multi-family housing starts climbed 27.1% to an annualized 634,000 pace. May represented an 11-month high in new home construction.
Building permits, which measures new housing units granted permits that have not necessarily begun construction yet, rose 5.2% in May, following a 1.5% drop in April.
April housing starts were revised down to 1.34 million from 1.4 million, suggesting that May’s “big outlier” may not tell the full story, Adams said.
In an effort to combat surging inflation, the Federal Reserve consecutively raised interest rates over the past 15 months. This pushed mortgage rates up significantly — topping 7% last November — leading to a slowdown in new and existing home sales. However, as the Fed adjusts its monetary policy and pauses its rate hikes, mortgage rates are trending lower and more homebuyers are returning to the market.
Builders eager to capitalize on reignited demand and low levels of supply are now building more homes.
“Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains,” Alicia Huey, chairman of the National Association of homebuilders, wrote in a housing report.
As the demand for new home construction grew in May, homebuilder confidence rose for a 6th consecutive month in June, according to the National Association of Home Builders and Wells Fargo. June’s reading marks the first time since 2022 that both the current and future sales components of the firm’s index exceeded 60.
“A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” Robert Dietz, the chief economist at NAHB said in a statement, adding that improved economic conditions will also bode well for builders.
“The Federal Reserve nearing the end of its tightening cycle is also good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans,” Dietz said.
To be sure, the bulk of the house buying market comes from existing homes rather than newly built homes.
The initial housing starts report “is really important for housing’s contribution to GDP, but it only covers a sliver of the housing market as far as home buyers are concerned,” Adams said. “In a typical year, five out of every six home purchases are on existing homes, and that side of the residential market is considerably weaker than the newly built market.”
However, despite improvements in the homebuilding sector, it’s really the nation’s homebuyers who are coming out on top.
According to data from the NAHB, builders offered incentives such as price discounts and free upgrades to buyers at a rate of 56% in June, up from 54% in May. Additionally, 25% of builders reduced home prices to boost sales during the month with an average price reduction of 7%.
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Source: https://www.businessinsider.com/housing-starts-homebuying-coming-to-a-neighborhood-near-you-2023-6?utm_campaign=Homeward%20Bound&utm_medium=email&_hsmi=263606877&_hsenc=p2ANqtz–niQFQ8CYQ9NFpXe8iBmihpR4h6-8nJJ9Of0UkL8KIHHMZ38j5pT77MhYrDCWRF61EqfQmbdH_XPbfnRbqIaPQjVxp9g&utm_content=263606877&utm_source=hs_email