Further signs of an improvement in the US property market emerged, with the rate of new home construction rising in December to their highest level in 13 years.
New housing starts jumped in the final month of 2019 to a seasonally adjusted rate of 1.608m, the highest level since December 2006, according to data from the Census Bureau on Friday. That was an increase from November’s upwardly-revised 1.375m (previously 1.365m) and cruised past the median forecast among economists for 1.375m.
The US property market improved last year as the Federal Reserve delivered three interest rate cuts that reduced the federal funds rate by a combined 0.75 per cent. By September, the 30-year mortgage rate hit its lowest since late 2016, helping entice potential buyers who had been turned away by borrowing rates in 2017 that reached their highest since 2010.
A strong labour market, headlined by an unemployment rate at its lowest level in half a century as well as wage gains, is also providing support to housing sector.
Friday’s data also showed building permits for new homes — considered to be a leading indicator of the property market — retreated more than expected from November’s 12-and-a-half-year-high. The number of permits in December dropped 3.9 per cent to 1.416m, from 1.474m the previous month and economists’ forecasts for 1.468m.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said activity is likely to have been boosted by “warmer-than-usual” December temperatures, but the numbers were “nonetheless very startling” and would lift forecasts for residential investment in the fourth quarter.
“But activity can’t be sustained at this level, and a hefty correction in January is a good bet. The permits numbers are a better guide to the underlying picture because they are much less weather-sensitive, and the December numbers are a bit disappointing,” he said.
Mortgage rates that continue to remain favourable to buyers and strength in jobs and wages should see momentum in the housing market continue into early 2020, Scott Volling, principal at PwC, said.
“Headwinds remain in the form of the cost of land, labour and materials, however the results for starts and permits over the past several months indicate the industry is finding a way to combat these headwinds,” he added.