WASHINGTON (Reuters) – U.S. homebuilding unexpectedly increased in August as rising rents boosted the construction of multi-family housing units, but soaring mortgage rates and stubbornly high home prices are undercutting overall demand for housing.
Housing starts rebounded 12.2% to a seasonally adjusted annual rate of 1.575 million units last month. Data for July was revised down to a rate of 1.404 million units from the previously reported 1.446 million units. Economists polled by Reuters had forecast starts would come in at a rate of 1.445 million units.
Multi-family housing construction is being supported by strong demand for rental apartments, with rising borrowing costs pushing homeownership out of the reach of many Americans.
The Federal Reserve’s aggressive monetary policy tightening has significantly weakened the housing market, with most indicators falling to levels last seen during the first wave of the COVID-19 pandemic in the spring of 2020. In contrast, other sectors of the economy, like the labor market, have shown incredible resilience despite the Fed’s attempts to cool demand.
The U.S. central bank is expected to raise its policy rate by 75 basis points on Wednesday for the third consecutive time. Since March, the Fed has lifted that rate from near zero to its current range of 2.25% to 2.50%.
Mortgage rates have risen even higher. The 30-year fixed mortgage rate averaged 6.02% last week, from 5.89% in the prior week, breaking above 6% for the first time since November 2008, according to data from mortgage finance agency Freddie Mac.
Permits for future home construction dropped 10.0% to a rate of 1.517 million units in August. Residential fixed investment declined at its steepest pace in two years in the second quarter, contributing to the second straight quarterly drop in gross domestic product during that period.
Homebuilding is likely to remain on the back foot for the rest of the year. A survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market sentiment index fell for the ninth straight month in September.
The survey found almost a quarter of builders reported reducing home prices and more than half were offering incentives to bolster sales, including mortgage rate buydowns and free amenities.
(Reporting by Lucia Mutikani; Editing by Paul Simao)