Housing market experts are showing early optimism for 2024 following the release of new data showing a surprise surge in housing starts in November. Indeed, housing starts jumped nearly 15% last month, reaching an annual rate of 1.56 million units, well above economists’ forecasts of 1.56 million. This marks the highest level for the metric in six months.
What does this mean for housing heading into the new year?
Well, it seems like clear evidence that homebuilders are making strides in the pinched housing market. If you recall, the supply of available homes has been notoriously limited since the pandemic and has been on the decline for the past decade at least. Paired with elevated mortgage rates, this has resulted in a housing affordability crisis.
Given today’s data, however, it seems conditions are starting to change in the real estate space.
“Investors have clearly rewarded homebuilders as low inventory of existing homes on the market has created an opportunity for new construction,” said Jeffrey Roach, chief economist at LPL Financial. “Falling mortgage rates also helped ignite demand. Mortgage rates are the lowest since July.”
Perhaps even more encouraging, the increase was largely carried by higher construction of single-family homes, up 18% last month.
What Does Soaring Housing Starts Mean for the Housing Market?
Today’s data comes as a follow-up to major changes in the National Association of Home Builders Market Index, which jumped 3 points on Monday to 37. For context, a reading of 50 is considered neutral. Below 50 points means conditions are less than desirable.
But with mortgage rates set to continue easing, housing may be in for an impending inventory surge. the 30-year is down nearly 50 basis points over the past month or so, pricing in Federal Reserve rate cuts in 2024.
With the Fed recently confirming its intention to lower rates three or more times next year, some expect mortgage rates to fall as low as 6% in 2024. While this is still markedly above pre-pandemic 3.9% levels, it would nonetheless be a healthy improvement from this year’s 8% peak.
Falling mortgage rates will certainly provide a boost to housing demand. Many hopeful homebuyers have been priced out of the market due to sky-high lending rates and all-time-high home prices.
This should further incentivize homebuilders.
“The pullback in mortgage rates over the last month or so has already helped to bring potential buyers back into the search process. … [but] the supply of existing homes on the market remains extremely low, even as demand is perking up,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets told MarketWatch. “Homebuilders could not ask for a better setup, as they will be relied upon to provide the bulk of the supply that potential buyers require.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
