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Economic Report: U.S. housing starts rebound in August on new apartment construction

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The numbers: Construction on new U.S. homes rose a seasonally adjusted 12.2% in August to 1.58 million, the Commerce Department said Tuesday. 

The rise in construction on homes reverses a steep fall in July, where housing starts fell a revised 10.9%.

Economists polled by the Wall Street Journal expected housing starts to rise to a 1.5 million rate from June’s initial estimate of 1.45 million.

The annual rate of total housing starts fell from 0.1% from the previous year.

In June, housing starts were revised to a steeper drop of 10.9% of 1.4 million, as compared to a previous drop of 9.6%.

Building permits for new homes fell 10% to 1.52 million in August. Economists had expected building permits to fall to a 1.62 million rate from June’s initial estimate of 1.69 million.

Key details: On an unadjusted basis, housing starts rose 11.4% in August, after a 13% drop in July.

The construction pace of single-family homes rose 3.4% in August and apartments rose 28.6%.

Permits for single-family homes fell 3.5% in August, while permits in buildings with at least five units dropped 18.5%.

Regionally, construction of homes surged in the Midwest and South. There was a modest increase of housing starts of 1.1% in the West. The Northeast saw a steeper drop of 17.3%.

Single-family construction in the Midwest led the jump with a 20.8% increase.

Big picture: The rise in construction reverses a sharp drop in housing starts in July but only brings starts back to June level. Starts are much lower than the 1.81 level seen in April.

Overall, economic data reflecting the conditions of the housing market have been weak. Depressed buyer demand and rising construction costs have weakened buyer confidence. The sharp rise in rates and high home prices have discouraged buyers, who are finding it hard to afford to purchase.

Nationally, home ownership as of June this year is at the lowest level since the Atlanta Fed started monitoring the data in 2006. 

The median sales price for a new home was $439,400 in July, according to the U.S. Census Bureau.

That in turn has slowed business for sellers and builders, which in turn is prolonging the recession in housing.

While rise in housing starts is a bounce back up from a big drop from July, the boost may be short-lived: In September, builders said they continue to be pessimistic about the near-term, which hints at further declines in the housing sector. 

Outside of the pandemic, builder confidence is at the lowest level in eight years.

What are they saying? “Housing starts rebounded in August, entirely retracing July’s precipitous fall … to be sure, I do not believe that we can signal the all-clear for the housing sector,” Stephen Stanley, chief economist at Amherst Pierpont Securities, wrote in a note to clients. 

“Activity is likely to continue to trend lower at least as long as mortgage rates are rising,” he added. “Still, it is good to see that July’s plunge exaggerated the degree of underlying weakness.

Market reaction: U.S. stocks
DJIA,
+0.64%

SPX,
+0.69%

were set to open lower Tuesday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.571%

rose above 3.5%

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