Construction activity on the rebound
Housing starts and completions rose year-over-year, and builders expressed more confidence this month — but a significant housing shortfall remains.
Construction activity rebounded for the most part in August as homebuilders weighed the impact of the expected interest rate cuts.
The numbers: Housing starts were up 3.9% year-over-year and up 9.6% compared to July, according to the U.S. Census Bureau. Building permits were also up in August following a sluggish July, reaching their highest level since March — but down 6.5% annually. Multifamily units accounted for most of that decline, however, while single-family permits were only down by 0.5%.
Completions of single-family homes rose 8.4% in August compared to a year ago, so those in the market for a newly constructed home will have more choices heading into the fall season.
Builders are slightly more optimistic: The uptick in housing starts aligns with an improvement in builder confidence. Following four consecutive months of declines, the NAHB Housing Market Index, which measures builder sentiment, rose to 41 in September. While up 2 points compared to August, it is still well below peak levels seen during the early-pandemic housing boom, when the index hit 90.
Regionally, builders in the Northeast remained most optimistic with a score of 49, followed by the South (41), Midwest (40) and West (39).
As the Federal Reserve begins cutting rates, buyer interest and builder sentiment should rise, said First American Senior Economist Sam Williamson — which could spur more construction activity.
'No short-term fixes': If builder confidence continues to increase, "it is likely that we will see an uptick in new housing starts over the coming months," said Bright MLS Chief Economist Lisa Sturtevant. And more inventory could improve the affordability picture.
But will it be enough to make a dent in the housing shortfall, which Sturtevant said is between 1.5 million and 5.5 million units? "It is promising that housing supply issues are gaining traction at the local, state, and, increasingly, the federal levels," Sturtevant said.
Still, she cautioned, "there is no magic bullet and no short-term fixes for increasing the housing supply," but reducing costly regulations at the state and local level could be a starting point.