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US: Residential investment finally poised to boost growth – Wells Fargo

Data released today showed that Housing Starts jumped 12.3% in August, to the highest annual rate since 2007. Analysts at Wells Fargo, point out the headline was boosted by a surge in apartments, but noted single-family starts were also strong. They see higher sales and builder optimism points to further improvement.

Key Quotes:  

“Higher builder confidence and an improving trend in single-family permits indicate that new home construction is finally beginning to catch up to the higher pace seen in new home sales. Total housing starts jumped 12.3% to a 1.36 million-unit pace, the highest since June 2007. The headline number surpassed all expectations, but was driven to a large extent by a 32.8% surge in multifamily starts.”

“Single-family starts were quite solid, rising 4.4% to a 919,000-unit pace, the highest since January 2019. Only three times in this long and gradual housing recovery have we seen single-family construction at a higher pace than in August.”

“The National Association of Homebuilders (NAHB) Housing Market Index rose to 68 in September, an 11-month high. The increase was due to an improvement in builders’ assessments of current sales, which have been boosted by the sharp decline in mortgage rates and strong labor market.“

“We might expect stronger builder optimism and construction data given the sharp decline in mortgage rates””the average 30-year conventional mortgage rate has fallen over 130 bps since last November.”

“The Fed will almost certainly announce another rate cut this afternoon, providing further help for builders facing tighter credit recently, and easing some of the supply-side challenges of meeting the higher demand. After being a drag on overall GDP growth for six straight quarters, residential investment is finally poised to boost growth in the third quarter and through next year.”

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