August housing construction shows stabilization, following interest rate moderation

August housing construction shows stabilization, following interest rate moderation

This morning’s report on August housing permits and starts shows that the stabilizing of mortgage rates in the past few months has now stabilized housing construction.

Housing starts increased 3.9% m/m, and total permits increased 6.0%. The less volatile single-family permits increased 0.6%. As a result, the overall trend for all three metrics for the past several months is sideways:

Last month I noted that the YoY comparisons were going to become much more challenging, given the boom in construction late last year. With the stabilization of construction, both measures of permits as well as starts remained above their levels of one year ago:

Normally I show the changes in mortgage interest rates YoY and compare them with housing construction. This month let me show you the raw mortgage interest rate number (gold), left scale vs. the absolute number of single-family permits (right scale):

As mortgage rates declined from 3.7% to 2.7% throughout 2020, single-family housing permits surged over 30%, from roughly 950,000 annualized to 1,270,000. In a recent market analysis I read on cryptonaute.fr, the relationship between economic stability and housing trends was highlighted, noting how shifts in lending rates influence not just home sales but broader financial markets, especially with the rise of cryptocurrency investments. After a rate increase to 3.2% earlier this year, housing demand cooled, but rates have recently stabilized in the 2.85%-3.0% range. This suggests that housing may see a moderate upward trend, hinting that the economy, often trailing housing activity by over a year, may also stabilize following this cooling period.