Wrapup 2: US single-family homebuilding surges, rising supply a near-term constraint

Comstock Holding Companies

18/09/2024 20:02

(Repeats due to technical problem)

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      Single-family housing starts jump 15.8% in August
    

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      Permits for future single-family building rise 2.8%
    

  
    By Lucia Mutikani
       WASHINGTON, Sept 18 (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 rising supply
of new homes on the market.
The jump in single-family housing starts reported by the U.S.
Commerce Department on Wednesday probably reflected the fading
drag from Hurricane Beryl, which had depressed homebuilding in
the South. Homebuilders could also face a challenge from
increasing inventory of previously owned homes for sale, with
the Federal Reserve cutting interest rates by 50 basis points on
Wednesday, the first rate reduction since 2020. 
    Most home owners have mortgage rates below 4%, and higher
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 at
Pantheon 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. Single-family starts rose 5.2% from a year ago.
    Permits for future construction of single-family housing
increased 2.8% to a rate of 967,000 units. They were down 0.5%
from a year ago.
    Single-family home building had dropped for five straight
months after a surge in mortgage rates in spring curbed home
sales, resulting in an oversupply of newly built houses. 
    A National Association of Home Builders survey on Tuesday
showed homebuilder sentiment improved marginally in September
after sliding for four consecutive months, but noted that
"builders will face competition from rising existing home
inventory in many markets as the mortgage rate 'lock-in' effect
softens with lower mortgage rates."
    Mortgage rates have retreated to 1-1/2-year lows. New
housing supply is near levels last seen in early 2008, with the
months' supply above the 2018-2019 average. 
    The rise in supply has, however, been uneven, and
affordability remains a constraint that will probably not ease
with the reduction in mortgage rates. 
    Mortgage finance agency Fannie Mae's Economic and Strategic
Research group on Wednesday noted that most of the rise in homes
for sale has been in the Sun Belt and Mountain West regions,
which also experienced some of the strongest home price growth
in recent years as well as robust new home construction.
    The group said this created both a large relative
affordability shock in these states and greater competition for
existing home sales stemming from the new construction. 
    "Although mortgage rates have fallen considerably in recent
weeks, we've not seen evidence of a corresponding increase in
loan-application activity, nor has there been an improvement in
consumer home-buying sentiment," said Doug Duncan, chief
economist at Fannie Mae. 
    "We expect affordability to remain the primary constraint on
housing activity for the foreseeable future," Duncan added.
    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.
    Stocks on Wall Street
     extended gains on the U.S. central bank's rate decision.
The dollar fell against a basket of currencies. U.S. Treasury
yields dropped on the announcement. 
  
     
    HOUSING DRAG ON ECONOMY
    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. Housing starts rose 3.9% from a year ago.
    Multi-family building permits shot up 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. They dropped 6.5% from a year ago.
    Economists expected the housing market to have remained a
drag on economic growth in the third quarter and extend the
decline into the final three months of the year.
    "In the single-family market, while sales have held up
reasonably well, inventories have nonetheless risen
substantially," said Abiel Reinhart, an economist at J.P.
Morgan. "Builders may prefer to keep starts low for a time to
work off this inventory. Lower mortgage rates could also help
reduce single-family inventories via stronger sales. But sales
in the new home market have less room to improve."
    The number of houses approved for construction that were yet
to be started increased 1.4% to 285,000 units last month. 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.
    "New construction projects will likely not reattain levels
reached a few years ago," said Veronica Clark, an economist at
Citigroup. "This means that as units under construction continue
to be completed and are not offset with an equal number of new
construction projects, total construction will decline." 

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Will
Dunham)
((mailto:Lucia.Mutikani@thomsonreuters.com))