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US housing starts saw moderate growth in October and permits for future construction soared above a 12-year high, indicated renewed strength in the housing market amid lower mortgage rates. Housing starts rose 3.8% to 1.314 million units in October, above market projections.

Key Takeaways

• Housing starts rose 3.8% in October amid lower mortgage rates, rising to 1.314 million units and under expectations of 1.320 million units.
• Permits for future construction rose to a 12-year high, rising 5% to 1.461 million units.
• Single-family construction rose for the fifth month in a row, while multi-family construction saw a rebound.

While housing starts came in slightly below expectations, permits for future growth saw the strongest pace of growth since May 2007, rising 5%. The increase was driven largely due to growth in single-family building permits which rose 3.2% to the highest level since August 2007. Annually, housing starts rose 8.5% in October. Data for September was revised slightly upwards from 1.256 million units to 1.266 million units, down from August figures.

Residential investment saw a rebound in Q3 2019 after six consecutive quarterly declines, the longest period of decline since the global recession which ended a decade ago. Single-family home building, which accounts for the largest share of the market, rose 2% to 936,000 units in October, the highest in 9 months. The Midwest, West, and South saw increases in this category, while single-family building dropped in the Northeast. Starts for the volatile multi-family housing category rose 8.6% to 378,000 units last month, and permits for these homes rose 8.2% to 552,000.

The housing sector has seen renewed strength in recent months, attributed to the Federal Reserve’s monetary easing policies which cut mortgage rates from the multi-year highs seen in 2018. However, land and labor shortages are still having a negative impact on housing, which accounts for 3.1% of the US economy. Despite a recent survey indicating an increase in reported home builder confidence, builders responding to the survey stated that “lot shortages remain a serious problem, particularly among custom builders.”

US housing starts +3.8% to 1.31mil unit in October w/ single-family starts +2%.
> Up 8.5% y/y

Housing permits +5% to 1.46 mil (highest since May 2007)
> Up 14.1% y/y

Lower rates & reduced price appreciation boosting #housing, but w/ income cooling expect limited 2020 momentum pic.twitter.com/6zH4B1Yacx

— Gregory Daco (@GregDaco) November 19, 2019

Monetary Policy

The 30-year fixed mortgage rate now stands at 3.75%, well below the peak of 4.94% seen in November 2018 according to mortgage financiers Freddie Mac. The Federal Reserve also cut the benchmark rate of interest three times this year before indicating a pause in monetary easing. The rate cuts were implemented to bolster areas of the economy like housing and to hedge against the impact of low inflation and the ongoing trade war which have led to recessionary pressures building up.

While trade tensions have slowly cooled over recent months, the global economy is entering a slowdown along with the US economy, and the deceleration in consumer spending which accounts for the lion’s share of the economy is cause for concern. Analysts will be keeping a close eye on the relationship between the labor market and consumer spending, the two driving forces of the economy amid contracting business investment. Initial jobless claims, a key indicator of layoffs, will be closely monitored for any major increases that may spill out into the broader economy.

Market Reaction

Gold prices are up today following the news of unexpected strength in future construction data. Spot gold last traded at $1,474.25/oz, up 0.23% with a high of $1,475.14/oz and a low of $1,465.16/oz. Gold prices have also faced selling pressure earlier in the day due to upward momentum in the US equities market, leading to increased risk appetite in the short term.