U.S. single-family homebuilding rose solidly in December, but gains face constraints due to rising mortgage rates and an oversupply of new homes. Single-family housing starts, comprising the majority of homebuilding, increased 3.3% to a seasonally adjusted annual rate of 1.05 million units, according to the Commerce Department. November’s data was revised higher to a rate of 1.016 million units.
Higher mortgage rates, climbing alongside U.S. Treasury yields, continue to dampen homebuilding activity. Economic resilience and concerns over President-elect Donald Trump’s proposed policies, including tax cuts, tariffs, and immigration changes, have driven inflation worries. The Federal Reserve has slowed its interest rate cuts to two this year, reducing its benchmark rate to the 4.25%-4.50% range after aggressive hikes in 2022 and 2023.
The 30-year fixed-rate mortgage average exceeded 7% this week for the first time since May, Freddie Mac reported. Despite optimism among homebuilders following Trump’s election, challenges persist, including high material costs and labor shortages.
The National Association of Home Builders/Wells Fargo housing market index remained flat in January after gains in prior months, as builders cited high borrowing and construction costs. Unsold new home inventory remains high, nearing levels last seen in 2007.
Permits for future single-family housing construction rose 1.6% to a rate of 992,000 units in December. However, the oversupply of unsold homes is expected to limit building activity even if mortgage rates decline.
“The elevated inventory of unsold new homes suggests any recovery in demand will only modestly impact building activity,” said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
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