A suburban neighborhood of newly built homes.

Fall bump in new construction activity a welcome surprise 

Building permits and housing starts rose modestly between September and October, suggesting that more supply could be coming online in future months.

November 17, 2023
3 minutes

Key points:

  • Census data found that permits and starts were both up month-over-month, though numbers were down compared to the same period last year.
  • The increases came in spite of rising mortgage rates and declining homebuilder confidence during that time period.
  • In a separate report, pending sales were up in October, a sign that demand is starting to return.

An uptick in single-family home construction activity — even during a time of rising mortgage rates — offers some hope for a market that's been dealing with a chronic shortage of housing supply.

Building permits and housing starts rose 1.1% and 1.9% respectively between September and October, according to the latest data from the U.S. Census Bureau. Both measures remain around 4% below last year's levels, however.

Home completions showed the opposite pattern: Completions were down 4.6% month-over-month, but up by the same amount compared to a year ago.

The increases in permits and starts, while small, are notable since they occurred in spite of rising mortgage rates, which hovered around 8% during that time period, and deteriorating home builder confidence. Interest rates have recently declined, which could restore some of that confidence for builders who want to address low inventory levels.

"A good inflation report and steadily declining mortgage rates provide some relief to the market," said Lisa Sturtevant, chief economist at Bright MLS. "At the same time, there are still many individuals and families who want to buy a home but who are waiting for more supply."

The National Association of Home Builders is also forecasting improving conditions for single-family home construction, including a year-over-year gain in housing starts in 2024.

An increase in construction activity can't come soon enough — not only is supply already insufficient, but demand appears to be increasing in tandem with falling mortgage rates, which dropped below 7.5% this week.

New data from Redfin found that pending sales rose 1% month-over-month in October, a significant increase for this time of year. And while pending sales are still down 4.8% year-over-year, it's the smallest annual decline in nearly two years. A slight increase in inventory, more concessions from sellers and falling mortgage rates were factors, according to the report.

The Redfin report also noted a spike in the number of deals that fell through, a sign that affordability is still a challenge, and buyers were likely scared off by high interest rates last month. Roughly 54,000 U.S. home-purchase agreements were canceled in October — or more than 17% of homes that went under contract that month. That's the highest percentage since Redfin began tracking canceled agreements in 2017. 

"I'm seeing a lot of cold feet," said Redfin Tampa Sales Manager Eric Auciello in the report. "Home prices are high, mortgage rates are high and insurance costs are high, and when buyers see the final number, a lot of them are backing out."

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