Housing starts gain steam

Housing starts occurred at a 1.19 million seasonally adjusted annual rate in June, the Commerce Department said Friday, representing a 17% increase from May.

Permitting activity for newly-built homes rose 2.1% between May and June to a seasonally adjusted annual rate of 1.24 million.

Housing starts nearly met the consensus forecast of economists polled by MarketWatch — they estimated new home construction to take place at a 1.2 million-unit annual rate. Building permits fell slightly short of economists’ consensus forecast of 1.3 million.

What happened: Compared with a year ago, housing starts were still down 4%. However, on a monthly basis, construction activity rose for both single-family properties (up 17.2%) and multifamily buildings (up 18.6%).

The Northeast saw the biggest pick-up in activity by far, with housing starts rising 114%. Construction activity increased by smaller amounts in the Midwest and the South and dropped slightly in the West.

On the permitting side, the number of single-family units authorized rose by nearly 12% between May and June. For building with five or more units, permits fell 14% on a monthly basis.

The home-building sector has marked a big turnaround from just a few months ago, when construction activity dropped to the lowest level in five years.

A couple of factors are driving the rise in home building. Mortgage rates are at all-time lows — just this week, the average rate on the 30-year, fixed-rate mortgage fell below 3% for the first time since Freddie Mac FMCC, -0.94% began tracking the data in the 1970s.

Low mortgage rates are encouraging buyers to come off the sidelines and re-enter the housing market. However, the supply of existing homes remains extremely constrained. Even before the pandemic there was a shortage of homes available for sale — but many sellers have refrained from listing their property out of fear of the coronavirus-fueled economic turmoil. As a result, home builders have a captive audience of interested buyers.