If you’re looking for evidence to support the idea that the recent easing in US financial conditions, and particularly the sharp decline in mortgage rates, is poised to rekindle inflationary animal spirits, look no further than a dramatic increase in housing starts.
While an ongoing dearth of resale inventory demands more in the way of new construction regardless, it’s difficult to escape the notion that the big drop in financing costs from the October highs might’ve played a role in bolstering building last month.
The 1.56 million pace for November reported by the Commerce Department on Tuesday counted as a six-month high and topped every estimate from the nearly five-dozen economists who ventured a guess. The range was 1.272 million to 1.429 million. So, the actual print cleared the highest guess by a country mile.
The 14.8% MoM increase was the sharpest since May and among the biggest since summer of 2020, when the pandemic housing bubble was beginning to inflate.
The pace of new construction in November was the second-briskest since June of 2022, when prices peaked initially (home values made fresh records in recent months on both key national gauges covering existing properties).
Single-family starts posted an even more dramatic increase, rising 18%. The 1.143 million rate was the fastest since April of 2022, the month after the first Fed hike of the cycle. November’s pace counted as just the second single-family print above 1 million since the summer of last year.
Multifamily starts rose 9% to a four-month high. The pace of total starts in the Northeast doubled in November from October, and rose 16% in the South.
The update came on the heels of the first monthly gain for builder sentiment since July. In the NAHB release, Chief Economist Robert Dietz addressed the apparent discrepancy between relatively resilient single-family starts in recent months and the four-month swoon for builder moods.
“Temporary and outsized differences between sentiment and starts occur after short-term interest rates rise dramatically, increasing the cost of land development and loans used by private builders,” Dietz said.
The NAHB went on to predict that “as rates moderate, the temporary difference between sentiment and construction activity will decline.”
Permits, meanwhile, slipped to a 1.46 million pace last month compared to 1.498 million in October. Consensus was looking for a slightly better read. That said, single-family permits continued an unabated rise from January’s local nadir, with the pace reaching 976,000. That was the fastest since May of 2022.
It’s hard to know how to interpret a boon to GDP from residential construction. On one hand, more supply should help bring down home prices. On the other hand, the Fed is (still) trying to cool the economy given the broader read-through of above-trend growth for inflation.
You can write your own script. God knows everyone else is.
We know that most new multi-family starts are aimed at the rental market. I wonder what proportion of the funds for this new construction carries variable rates. So for whom are all those new single-family units targeted, renters or buyers?
Looks like multifamily starts only ticked up a little; the jump is almost all single-family.
https://fred.stlouisfed.org/graph/?g=1cUUY
“You can write your own script. God knows everyone else is.“
Ha well said. Don’t think anyone has high confidence on any direction regarding housing. The juxtaposition of new starts vs sentiment is interesting, maybe timing related but maybe not. It would make sense for sentiment to be low while new starts are high if incentives are destroying their margins.