© Reuters. FILE PHOTO: New contemporary attached residential homes are shown under construction by Beazer Homes USA Inc. in Vista, California, U.S., October 24, 2023. REUTERS/Mike Blake/File Photo
By Lucia Mutikani
WASHINGTON (Reuters) – U.S. single-family homebuilding rebounded sharply in February, hitting the highest level in nearly two years, amid mild temperatures and a persistent shortage of previously owned houses on the market.
Homebuilding could gain further momentum this year, with mortgage rates likely to continue their downward trend on expectations that the Federal Reserve will start cutting interest rates by June, and contribute to economic growth.
The report from the Commerce Department on Tuesday also showed permits for the future construction of single-family housing units rose to more than a 1-1/2-year high last month.
“A lack of inventory and lower borrowing costs, over time, should be supportive of building activity,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “And a decline in mortgage rates should be positive for sales.”Single-family housing starts, which account for the bulk of homebuilding, surged 11.6% to a seasonally adjusted annual rate of 1.129 million units last month, the Commerce Department’s Census Bureau said. That was the highest level since April 2022.
Data for January was revised higher to show single-family starts falling to a rate of 1.012 million units instead of the previously reported 1.004 million units.
Though the housing market has been pummeled by aggressive rate hikes from the U.S. central bank as it battles inflation, homebuilding has been supported by an acute housing shortage, with most homeowners locked into lower mortgage rates.
Recent government data showed there were 757,000 housing units for sale in the fourth quarter, well below the 1.145 million units before the COVID-19 pandemic.
A survey from the National Association of Home Builders on Monday showed confidence among single-family home builders rose to an eight-month high in March amid optimism about sales now and over the coming six months.
Fed officials were expected to leave the central bank’s policy rate unchanged in the current 5.25%-5.50% range at the end of a two-day meeting on Wednesday, having raised it by 525 basis points since March 2022.
The average rate on the popular 30-year fixed-rate mortgage has retreated in recent weeks after flirting with 7% in late February, according to data from mortgage finance agency Freddie Mac.
Single-family homebuilding jumped 40.2% in the Midwest and increased 16.6% in the densely populated South. It accelerated 16.4% in the Northeast, but declined 15.4% in the West.
Starts for housing projects with five units or more advanced 8.6% to a rate of 377,000 units.
Overall housing starts increased 10.7% to a rate of 1.521 million units in February. Economists polled Reuters via biedexmarkets.com had forecast starts would rebound to a rate 1.425 million units.
Single-family building permits rose 1.0% to a rate of 1.031 million units in February, the highest level since May 2022. Multi-family building permits rose 2.4% to a rate of 429,000 units last month. Building permits as a whole climbed 1.9% to a rate of 1.518 million units in February.
