U.S. new-home construction unexpectedly surged in November to a six-month high, benefiting from a dearth of existing houses on the market and suggesting the crunch in residential real estate is easing.
Residential starts increased 14.8% last month to a 1.56 million annualized rate, government data showed Tuesday. The median forecast in a Bloomberg survey of economists called for a 1.36 million pace.
Construction of single-family houses jumped 18% to the highest level since April 2022, while starts of multifamily projects increased 6.9%.
Permit applications, an indicator of future construction, decreased to a 1.46 million pace due to a drop in multifamily projects. Permits for one-family homes increased to the highest level since May 2022.
Builders are benefiting from a shortfall in listings of previously-owned homes, enticing buyers with incentives such as subsidized mortgage rates and price cuts. That's helped ease the pain of the worst affordability on record.
While mortgage rates are twice as high as they were at the end of 2021, just before the Federal Reserve started to tighten monetary policy, borrowing costs have slumped in the past six weeks. The average rate on a 30-year fixed mortgage has dropped back below 7% for the first time since August, according to the latest data from Freddie Mac.
The annualized pace of new-home starts is on par with pre-pandemic rates, suggesting the toll on gross domestic product from weak residential investment is beginning to ease.
Figures on Monday showed
All regions reported increased housing starts in November, including a 16.3% jump in the South. New construction doubled in the Northeast, and rose 2.1% in the West and 1.4% in the Midwest.
The number of homes completed rose 5% to a 1.45 million pace. The level of one-family properties under construction also increased.
Before the report, outlays for home construction were seen barely subtracting from fourth-quarter growth, according to the Atlanta Fed's
Estimates of the inventory shortage vary but range from 3.5 million to 5.5 million units, said Odeta Kushi, deputy chief economist at First American Financial in a statement. That means the new supply to come on line would only ease, not erase the deficit.
"More housing supply is needed to meet demand, especially in an environment where most existing homeowners are rate locked-in and unwilling to part with their low mortgage rate," Kushi said. "Builders are benefitting from a lack of resale inventory. The recent decline in mortgage rates should contribute to the single-family momentum."
Data on new-home sales for November will be issued Dec. 22 and provide further clues on demand.
— National Mortgage News staff contributed to this article
