Housing starts unexpectedly surge in November as mortgage rates fall
Housing starts jump to highest level since May as mortgage rates fall
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New U.S. home construction roared back to life in November as falling mortgage rates helped draw consumers back into the housing market.
Housing starts surged 14.8% last month to an annual rate of 1.56 million units, the highest level since May, according to new Commerce Department data released Tuesday. That is well above Refinitiv economists' forecast for a pace of 1.36 million units.
"Investors have clearly rewarded homebuilders as low inventory of existing homes on the market has created an opportunity for new construction," said Jeffrey Roach, chief economist at LPL Financial. "Falling mortgage rates also helped ignite demand. Mortgage rates are the lowest since July."
However, applications to build – which measures future construction – fell in November, sliding 2.5% over the course of the month to an annualized rate of 1.46 million units. When compared with the same time last year, building permits are up about 4.14%.
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Homes are under construction in Sacramento, California, on July 3, 2023. (David Paul Morris/Bloomberg via Getty Images / Getty Images)
The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose three points to 37. The increase followed a six-point drop in November.
Any reading below 50 is considered negative.
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"With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look," said Alicia Huey, NAHB chair and a custom home builder and developer from Birmingham, Alabama.
A sign outside a home for sale in Atlanta on Wednesday, Sept. 6, 2023. (Photographer: Elijah Nouvelage/Bloomberg via Getty Images / Getty Images)
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Sentiment among builders began steadily falling at the end of the summer after mortgage rates shot above 7%, throttling demand among would-be homebuyers. However, borrowing costs have retreated over the past month as many investors believe the Federal Reserve is done with its aggressive interest-rate hike campaign.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.95%, according to Freddie Mac, down from a high of 7.79% at the end of October but well above the pre-pandemic average of 3.9%.
"Mortgage rates have continued to float down in the early weeks of December, so this momentum should continue through year end, welcomed news for buyers who have been unlocked by affordability to enter the market once again," said Nicole Bachaud, Zillow senior economist.