The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts soared in November to their highest level since February 2008. This was the first housing starts release since before the government shutdown, so we also received new data for September and October. New residential construction starts rose from an annualized 883,000 in August to 873,000 in September to 889,000 in October to 1,091,000 in November. The increase between October and November was a whopping 22.7 percent increase, and this was the first time that housing starts had surpassed the one million mark since March.
Over the past 12 months, housing permits have risen 29.6 percent, with new single-family construction up 26.2 percent. This is yet another sign that the housing sector’s rebound has continued, even with a bit of a pause in recent months.
Both single-family and multi-family housing starts were up sharply. New single-family construction starts have risen from 580,000 at the annual rate in September to 602,000 in October to 727,000 in November. This was the most single-family starts since March 2008. Multi-family starts have grown from 287,000 in October to 364,000 in November. This was the fastest pace of multi-family starts since February 2008, but it was close to the 363,000 observed in December 2012.
Lower borrowing rates have helped to fuel this growth. For example, the average 30-year fixed-rate mortgage was 4.57 percent during the first week of September, according to Freddie Mac, but it fell to 4.10 percent by the last week of October. It rose to 4.29 percent by the end of November, but in general, Americans have begun to come back into the housing market as rates have fallen and the “sticker shock” of higher rates has become less pervasive. (The average was 3.35 percent as recently as the first week of May.) The surge in November could also be a reaction to the anticipated increase in mortgage rates moving forward, especially with the Federal Reserve beginning to slow its asset purchases soon.
Meanwhile, housing permits declined from 1,039,000 in October to 1,007,000 in November. I would not make too much of this decrease, however, as it stemmed largely from the highly-volatile multi-family sector. Single-family housing permits rose from 621,000 to 634,000, the most since April 2008. Single-family permits have increased 10.5 percent year-over-year, with total permitting up 7.9 percent. Moreover, this was the second month in a row with permits exceeding one million, suggesting the recent pickup has been sustained.
The gains in housing activity have also helped to lift home builder confidence once more. The National Association of Home Builders and Wells Fargo reported that its Housing Market Index rose from 54 in November to 58 in December. This returns the HMI back to where it was in August, suggesting that the recent lull in the housing market has begun to subside.
The larger story is the fact that the HMI has now been over 50 for seven straight months, indicating that more builders are positive than negative in their outlook. This should bode well for the industry as we move into 2014. The indices for current (up from 58 to 64) and expected (up from 60 to 62) single-family sales are a further indication of this. Indeed, the traffic of potential buyers (up from 41 to 44) has picked up, even as it could be more robust.
In conclusion, I expect for the housing market to continue to expand as we move into the new year, with the housing starts and permits data encouraging overall. With that said, I also anticipate higher (but still historically low) mortgage rates in the months ahead. It will be interesting to see how increased borrowing costs might dampen demand. Nonetheless, I still feel that housing will remain a bright spot, particularly with improvements in the economy and home buyers becoming more accustomed to the “new normal” in mortgage rates.
Chad Moutray is the chief economist, National Association of Manufacturers.
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