The annual pace of new home construction surged last month amid a historic shortage of housing inventory and falling mortgage rates.
Housing starts jumped by 14.8% in November compared to the previous month, rising for the third month in a row, according to data released Tuesday by the Census Bureau. The rate of starts has not been this high since May.
Starts rose to a seasonally adjusted annual rate of 1.56 million units last month, rising above last month’s pace of 1.372 million and soaring past expectations of a 1.36 million unit pace.
The number of units started was 9.3% higher than a year ago.
Building permits ticked down in November, however, falling 2.5% from October’s revised number to a seasonally adjusted annual rate of 1.46 million.
Permits were 4.1% higher than a year ago.
Growth in single-family homebuilding
The surprisingly strong November residential construction activity was driven by single-family building activity, said Lisa Sturtevant, chief economist at Bright MLS, in a statement.
“The number of new single-family homes under construction was up more than 40% compared to a year ago,” she said. “Starts of units in multifamily buildings, which are buildings with five or more units, fell 33.7% compared to a year ago.”
Sturtevant said that data on residential permits suggests that new single-family housing construction will continue to be robust heading into 2024, and apartment construction will be slow.
“Despite the higher starts in November, we are still not building enough new housing to keep up with demand,” she said. “Estimates of the housing shortfall range from 3 to 6 million units. A lack of sufficient new housing construction drives rents and home prices up, making it difficult for individuals and families to find housing they can afford.”
But a big shift in November was that mortgage rates came down from closing in on 8%.
The average rate for a 30-year, fixed-rate mortgage hit the highest level in 23 years at 7.79% at the end of October, according to Freddie Mac. Since then, rates have fallen by 80 basis points and are now under 7%.
With the recent Federal Reserve action to pause rate hikes and its suggestion there may be rate cuts in 2024, it is expected mortgage rates will continue to come down moderately.
“Lower rates increase the affordability of new homes and builders are continuing to ensure they have enough supply ready to meet the pent-up demand from the past few years,” said Kelly Mangold of RCLCO Real Estate Consulting in a statement.
While lower rates may come with a weaker job market in the new year, home prices are expected to stay strong, Mangold said, since so many existing home owners are unwilling to part with their ultra-low mortgage rate.
An extraordinarily low inventory of existing homes for sale makes the growing supply of new construction homes all the more important as an alternative for home buyers.
“The new home market is in many cases the only reliable supplier of for-sale inventory, and households moving because of a new job or those seeking to upsize or right-size their space have limited other options,” said Mangold.
