Housing Starts climb in August

Summary

Fed easing to favor residential construction

Lower mortgage rates and the anticipation for substantial Fed easing in the coming months appears to be brightening the outlook for residential construction. Housing starts rose 9.6% in August, driven entirely by a surge in single-family building. August’s gain prompted a 3.9% annual increase in overall starts, the first year-over-year improvement since April. As builder confidence brightens in anticipation of higher sales traffic, single-family permits also notched their second sequential uptick. Meanwhile, the multifamily market is still searching for balance. Although apartment demand has firmed notably this year, it remains below the lofty pace of new development, prompting a trend decline in new multifamily projects. Despite a notable improvement in August, multifamily starts were still down over 30% on a year-to-date basis.

As the Fed starts easing, lower financing costs should provide a boost to both the single-family and multifamily sectors. That said, elevated rates, weakening labor market conditions and substantial construction already underway will likely to limit the scope for a residential rebound.

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