Home building in the U.S. increased in the month of August to the highest level since June 2007, according to Commerce Department data released Wednesday. Markets across the country also continue to see existing home sales rise. Not at the levels they have in the past but still looking healthy.
The report cues a positive note for the American housing industry in what has been a year marked by lagging home sales and sluggish single-family construction. New home construction is a signal of a healthy economy. The more homes being built means the more people that can afford the American dream.
Housing starts, a measure of new-home construction, climbed 12.3% in August from the prior month to a seasonally adjusted annual rate of 1.364 million.
The new-home market is getting a boost this year from lower mortgage rates and the extremely low levels of supply for existing homesBen Ayres, senior economist at Nationwide
Economists surveyed by The Wall Street Journal had forecast that starts rose 4.1% to an annual pace of 1.24 million last month.
Despite the August jump in housing starts, the market is playing catch-up, said National Association of Home Builders economist Robert Dietz, because single-family housing starts on the year-to-date are still down 2.7%
In fact, it was strength in the multifamily sector that helped drive the steep August climb in building. Construction of buildings with two or more units rose 32.8% in August from a month earlier. Single-family home construction, meanwhile, rose just 4.4%
Residential building permits, which can signal how much construction is in the pipeline, rose 7.7% from July to an annual pace of 1.419 million.
Housing-starts data are volatile from month to month and can be subject to large revisions. August’s 12.3% increase for starts came with a margin of error of 10.2 percentage points. More broadly, home construction has been weak this year. In the first eight months of 2019, starts were down 1.8% compared with the same period in 2018.
Wednesday’s data are a positive sign for a housing sector that has been on shaky footing the past year. Despite historically low mortgage rates and rising wages, the housing sector has been strained by a low inventory of affordable homes, propelled by rising construction costs and lack of land.
Last month, the Commerce Department reported that July saw the largest monthly drop in new-homes sales since 2013, with new-home sales falling by 12.8 percent, a bigger decline than economists had anticipated. Numbers for August 2019 will be released on Sept. 25.
Economists have been waiting for low mortgage rates to have a measurable impact on the housing market. The average interest rate on a 30-year mortgage was 3.56% last week, according to Freddie Mac, about a percentage point less than it was a year ago. A Wednesday report from the Mortgage Bankers Association showed that mortgage applications for home purchases have risen for three straight weeks.
Home-builder stocks, meanwhile, are outpacing the S&P 500 this year by a 13-point margin, fueled in part by speculation over low borrowing costs.
Zillow economist Matthew Speakman said the strong August housing-starts numbers indicated high builder confidence was being buoyed by falling mortgage rates. “It’s not flashy, but this sign of resilience is welcome news for a housing market that is still struggling to grasp some momentum,” Mr. Speakman said.