Single-family housing starts jumped 15.8% on a monthly basis to a seasonally adjusted annual rate of 992,000 units in August, the Commerce Department’s Census Bureau reported Wednesday, a 5.2% increase from the same time last year.
On a year-to-date basis, single-family starts are up 10.4%.
Though new-home construction stalled following the Federal Reserve's March decision to hold borrowing costs higher for longer, an aggressive start to the central bank’s rate-cutting cycle — lowering its benchmark rate by 50 basis points, penciling in an additional 50 basis points of easing before year’s end — should support new construction growth into 2025.
“The rise in single-family permits is further good news for the industry, which was hit hard by tight monetary policy in the first half of this year,” said Danushka Nanayakkara-Skillington, the National Association of Home Builders’s (NAHB) assistant vice president for forecasting and analysis, commenting on the latest Census Bureau figures.
On a monthly basis, permits for future construction of single-family homes rose 2.8% in August, to a rate of 967,000 units, a slight drop of 0.5% from a year ago. Demand for newly-built single-family homes remains strong, experts say.
However, the supply of new homes being added to for-sale housing inventory is not evenly distributed across U.S. regions.
Fannie Mae’s Economic and Strategic Research (ESR) Group reported Wednesday that “most of the rise in homes for sale have occurred in Sun Belt and a few Mountain West states.” While multiple factors account for this divergence, “these states have had comparatively strong new home construction since the pandemic, causing existing home listings to face greater competition from homebuilders offering new homes,” the Group noted.
After average effective rates on loans for land acquisition and speculative single-family construction reached their highest levels since 2018 in the second quarter, builder sentiment rebounded in September, largely due to anticipated easing in construction costs.
“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. Still, easing mortgage rates means new-home builders may face increased competition from additional resale inventory coming online.
That being said, existing-home sales and purchase applications have continued to slide despite the average rate for 30-year-fixed conventional mortgages falling roughly 100 basis points since May. Easing mortgage rates did, however, push applications for new home purchases up 4.4% annually in August, according to the Mortgage Bankers Association’s (MBA) latest survey.
The ESR Group has lowered its home sales forecast for the remainder of 2024 and 2025.
“While we have softened our new home construction forecast over the past couple months,” the Group continued, “we continue to expect comparatively robust activity in the new home sales market as elevated existing home prices will continue to make new homes attractive, especially as homebuilders continue to offer concessions and rate buy downs.”
In September, the share of builders cutting prices dropped one point to 32%, the first decrease since April, according to the NAHB's latest survey of new-home sales conditions. The average price reduction was 5%, marking the first time it’s been below 6% since July 2022. The use of sales incentives fell to 61%, down from 64% in August.
