The number of housing starts ticked up slightly in October, a sign of resilience in construction as the market for existing homes is battered by high mortgage rates.
Housing starts, the change in the number of new residential buildings that began construction, rose 1.9% from September to a seasonally adjusted annual rate of 1.37 million, according to a Friday report from the Census Bureau.
From October 2022, they fell by 4.2%.
For permits to build, which are seen as a proxy for future construction, the rate of new permits last month was 4.4% below the rate in October of last year.
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As of Thursday, the average rate on a 30-year, fixed-rate mortgage was 7.36%, according to Mortgage News Daily, which tracks daily changes in rates. That is down from a recent peak of above 8%, but still far higher than in the years prior to the pandemic and nearly double the lows notched during the pandemic.
The housing market was red-hot during much of the pandemic because the Federal Reserve cut interest rates to near-zero levels, causing ultra-low mortgage rates for homebuyers. Those historic rates spurred a massive upsurge of demand, causing prices to rise and new construction to skyrocket.
The whiplash from the ultra-low pandemic mortgage rates to now has caused ripples throughout the housing sector.
Housing starts peaked in April 2022, when they were the highest they had been since 2006, just before the housing market crashed. Since then, they have gradually trended lower as mortgage rates rose.
Still, there was an increase in housing starts earlier this year as homeowners held off on selling their homes for fear of losing their lower mortgage rates. That put pressure on new home sales, causing prices to rise and construction to increase in order to meet demand.
New home sales rose 12.3% from August to September to a seasonally adjusted annual rate of 759,000, according to the Census Bureau. The number of new homes sold was the highest it has been since February of last year. Sales in September were 22.9% higher than in September 2022.
Existing home sales last month slowed 2% to a seasonally adjusted annual rate of 3.96 million, the National Association of Realtors reported. That is the lowest level since 2010, showing the damage higher rates have done to housing affordability and demand.
Additionally, the pace of existing home sales in September was down a massive 15.4% from the year before.
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The higher mortgage rates are a result of the Fed raising its interest rate target, which now sits at 5.25% to 5.50%. Recent inflation reports — which show inflation is meaningfully declining — have made it unlikely that the Fed will raise its interest rate target again during this tightening cycle.
The next meeting of top Fed officials is slated for mid-December, and after this week’s inflation reports, investors now see a 99.9% probability that the Fed will not hike rates at this coming meeting, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.