The number of housing starts ticked up in August as mortgage rates continued their descent from multi-year highs.
Housing starts, the change in the number of new residential buildings that began construction, rose 9.6% from July to this past month, according to a Wednesday morning report from the Census Bureau.
They are now at a seasonally adjusted annual rate of 1.356 million. From August 2023, they rose 3.9%.
For permits to build, which are seen as a proxy for future construction, the rate of new permits last month was 6.5% below the rate in August of last year.
As of this week, the average rate on a 30-year, fixed-rate mortgage was 6.11%, according to Mortgage News Daily, which tracks daily changes in rates. That is down more than a full percentage point above a recent peak earlier this year, although is still far higher than in the years prior to the pandemic.
At the peak of the pandemic, the Fed cut its interest rate target to near zero, and mortgage rates plunged to ultralow levels. At one point in early 2021, people were locking in 2.5% mortgages — the lowest level in postwar modern history.
The low rates added to an explosion of homebuying and investment, generating an incerase in home construction. But then, the dynamic began shifting fast when inflation increased and the Fed hiked interest rates in response, thus pushing mortgage rates to the highest level since the turn of the century.
Now, the Fed is eyeing its first interest rate cuts since the start of the pandemic, with the first downward revision expected on Wednesday. The coming rate cut and the likelihood that there will be more to come in the next several months have been the main factor pushing down mortgage rates.
New home sales rose 10.6% from June to a seasonally adjusted annual rate of 739,000 in July, according to the most recent report from the Census Bureau. The number of new home sales is 5.6% higher than it was in July of last year.
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Existing home sales in July rose 1.3% to a seasonally adjusted annual rate of 3.95 million, the National Association of Realtors reported. Still, the pace of existing home sales is down nearly 2.5% from the year before.
The housing market and housing affordability have been major issues for voters this election cycle given the years of hot inflation experienced under President Joe Biden. The Fed hiking interest rates in order to tamp down inflation has only made buying a home even more challenging for voters as mortgage rates rose.