New U.S. home construction rebounded in September after a steep drop the previous month, even as the housing market continues to confront high mortgage rates.
Housing starts rose 7% last month to an annual rate of 1.35 million units, according to new Commerce Department data released Wednesday. That is slightly below Refinitiv economists' forecast for a pace of 1.38 million units.
But applications to build – which measures future construction – fell in September, sliding 4.4% over the course of the month to an annualized rate of 1.47 million units. Compared with the same time last year, building permits are down about 7.2%.
"Investors should know that the low supply of existing homes on the market provides a favorable backdrop for homebuilders," said Jeffrey Roach, chief economist at LPL Financial. "Low supply of available homes on the market will likely keep prices elevated, despite the Fed’s efforts to cool the economy and suppress housing inflation."
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The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell five points to 40, the lowest reading since January 2023. The decline followed a five-point drop in September.
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Any reading below 50 is considered negative.
"Builders have reported lower levels of buyer traffic, as some buyers, particularly younger ones, are priced out of the market because of higher interest rates," said NAHB Chair Alicia Huey, a custom home builder and developer from Birmingham, Ala. "Higher rates are also increasing the cost and availability of builder development and construction loans, which harms supply and contributes to lower housing affordability."
Rates are expected to remain elevated, as the Federal Reserve has signaled that it may hold interest rates at peak levels for longer than previously anticipated.
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Rates on the popular 30-year fixed mortgage are currently hovering around 7.57%, according to Freddie Mac, well above the 6.92% rate recorded one year ago and the pre-pandemic average of 3.9%.
It is the highest level in more than two decades.
