U.S. Homebuilding Hits 13-Year High, Showing Some Recovery In Housing Market

Real Estate

Topline: U.S. homebuilding activity increased across the board to a 13-year high in December, showing that an apparent recovery in the housing market could gain momentum in 2020 and help support further economic growth.

  • New housing starts surged nearly 17% in December, to an annual rate of 1.61 million units—the highest level since December 2006 (economists polled by Reuters were expecting an increase of only 1.38 million units).
  • The housing market appears to be making a comeback, supported by a solid job market and growing optimism among home buyers and builders.
  • Demand for new homes has recently been fueled by mortgage rates hovering near a three-year low, not to mention a solid labor market which has led to wage gains that give potential homebuyers more money to spend.
  • The Federal Reserve cut interest rates three times last year, which has helped lower mortgages from multiyear highs: The 30-year fixed mortgage rate has dropped from its peak of 4.94% in November 2018 down to an average of 3.65%, according to Freddie Mac data.
  • On a year-over-year basis, housing starts were up just over 40% in December, while homebuilding in 2019 overall was up 3.2% compared to the year prior.
  • Stocks were mixed despite the good economic news: The Dow and S&P 500 were up slightly, by 0.02% and 0.07%, respectively, while the Nasdaq dropped 0.11%.

Crucial statistics: The housing market makes up more than 3% of the U.S. economy, according to Reuters. Investment in the housing market rebounded last quarter, after contracting for six straight quarters, which was the longest stretch since the recession from 2007 to 2009.

Big number: The largest share of the housing market, single-family homebuilding, rose 11% in December to the highest level since June 2007. Single-family housing starts increased in the Midwest and South, while falling in the Northeast and West, data showed.

What to watch for: The strong housing data comes amid rising confidence, too. U.S. homebuilder sentiment posted the highest back-to-back readings since 1999 in December and January, thanks to an increase in prospective homebuyers and a better overall sales outlook, according to Bloomberg.

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