US Housing Starts Surge 9.6% in August as Lower Mortgage Rates Boost Builder Stocks

US Housing Starts Rebound in August with 9.6% Increase

US housing starts made a notable recovery in August, rising 9.6% after a sharp decline in the previous month. The new data reflects the volatility in the housing sector as builders balance inventory levels with improved demand, supported by easing borrowing costs.

Housing Starts and Permits Surge

According to government figures released Wednesday, beginning home construction surged to a 1.36 million annualized rate in August, the fastest pace since April. This figure exceeded economists’ expectations, who predicted a rate of 1.32 million, signaling stronger demand in the housing market. Building permits, a forward-looking indicator of construction activity, also jumped 5% to an annualized 1.48 million, further boosting confidence in the sector.

Single-family home construction posted a strong gain, increasing by nearly 16% to an annualized pace of 992,000 units, marking the first monthly increase since February. In contrast, multifamily construction projects experienced a downturn, showing the sector’s mixed performance.

Inventory and Mortgage Rates Weigh on Builders

Despite the recovery in new housing starts, builders remain cautious due to elevated levels of unsold homes, the highest seen since 2008. While demand appears to be on the rise, driven by falling mortgage rates, the inventory surplus remains a significant challenge. Mortgage rates have recently dropped to their lowest level since 2022, spurred by expectations that the Federal Reserve will ease monetary policy. This rate decline is expected to gradually boost home sales and reduce inventory, but the process is likely to be slow.

Homebuilder Stocks Surge as Investors Bet on Recovery

Anticipation of a recovery in the housing market has fueled investor interest in US homebuilders. The iShares US Home Construction ETF has risen by 20% over the past three months, hitting a record high. This reflects optimism that a combination of improving affordability and falling mortgage rates will ultimately lead to higher demand for new homes.

Regional Breakdown of Housing Starts

Regionally, housing starts surged 15.5% in the South, recovering from a slump caused by Hurricane Beryl in July, which had reduced construction to its slowest pace since mid-2020. The Midwest and West also reported gains in August, adding to the positive momentum in homebuilding activity.

Market Forecast: Mixed Outlook for Housing Starts

While the latest data points to an uptick in residential construction, experts remain cautious. According to Bloomberg Economics, builders are likely to remain conservative due to the high stock of unsold homes. They predict housing starts may continue to decline in the near term, with the potential for a more sustained recovery only after affordability improves further.

Overall, despite a positive bounce in August, the short-term outlook for housing starts remains neutral to slightly bearish, depending on the pace of Federal Reserve policy adjustments and how quickly mortgage rates stabilize.