U.S. homebuilding increased more than expected in November and permits for future home construction surged to a 12½-year high as lower mortgage rates continue to boost the housing market and support the broader economy.
The report from the Commerce Department on Tuesday also showed the stock of homes under construction last month was the highest since 2007, which could help to loosen a supply squeeze that has stalked the housing market.
Though housing accounts for only a fraction of the gross domestic product, it has a bigger economic footprint. The continued strength in housing activity suggested that the economy remains on a moderate growth path despite slowing consumer spending and a weak manufacturing sector.
Housing starts rose 3.2% to a seasonally adjusted annual rate of 1.365 million units last month, with single-family construction racing to a 10-month high, and activity in the volatile multifamily sector increasing for a second straight month. Data for October was revised higher to show home-building rising to a pace of 1.323 million units, instead of advancing to a rate of 1.314 million units as previously reported.
Starts in the South, which accounts for the bulk of home-building activity, surged to the highest level since March 2007. But home-building in the Midwest tumbled, likely pulled down by unseasonably cold temperatures and snowstorms.
Overall housing starts jumped 13.6% on a year-on-year basis in November. Building permits increased 1.4% to a rate of 1.482 million units in November, the highest level since May 2007.
U.S. financial markets were little moved by the data.
The housing market is regaining momentum after the Federal Reserve cut interest rates three times this year, pushing down mortgage rates from last year’s multiyear highs. A survey on Monday showed that confidence among home-builders jumped in December to the highest level since June 1999.
But scope for robust gains in the sector, which accounts for about 3.1% of the economy, is limited as builders complained they are “still under-building due to supply-side constraints like labor and land availability.”
In addition to land and labor shortages, mortgage rates have backed up in recent weeks after the Fed signaled further rate cuts were unlikely. The U.S. central bank kept rates steady last week and indicated borrowing costs could remain unchanged at least through 2020.
The 30-year fixed mortgage rate has risen to 3.73% from a year low of 3.49% in early September, but is still below its peak of 4.94% in November 2018, according to data from mortgage finance agency Freddie Mac.
Residential investment rebounded in the third quarter after contracting for six straight quarters, the longest such stretch since the 2007-2009 recession. It is expected to contribute to gross domestic product again in the fourth quarter.
Single-family home-building, which accounts for the largest share of the housing market, increased 2.4% to a rate of 938,000 units in November, the highest level since January. Single-family housing starts rose in the West and Northeast, but fell in the Midwest and the populous South.
Single-family housing building permits rose 0.8% to a rate of 918,000 units in November, the highest since July 2007.
Starts for the volatile multifamily housing segment jumped 4.9% to a rate of 427,000 units last month. Permits for the construction of multifamily homes rose 2.5% to a rate of 564,000 units.
Housing completions dropped 6.6% to 1.188 million units last month. Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to bridge the inventory gap.
The stock of housing under construction increased 1.0% to 1.170 million units in November, the highest level since April 2007. The inventory of multifamily housing units under construction was the highest since September 1974.