First, the bad news: housing starts saw a substantial drop last month. August’s seasonally adjusted rate of 722,000 groundbreakings was below the rate from the same period last year. August also broke a streak of three straight months of increasing housing starts.
At first blush, it would appear August was a rough month in the midst of what has been a strong summer housing market. However, a deeper look at the numbers reveals natural events affected the number of groundbreakings last month. Floods ravaged Louisiana and Texas in August. As a result, housing starts in the South fell 14.8, while the other three regions – Northeast, Midwest and West – all saw increases in starts.
Now that the weather has improved, housing starts should recover, according to some economists.
“Look for a rebound in the next month or two,” said Jennifer Lee, a senior economist at BMO Capital Markets.
Even with a rough August, housing starts in 2016 are still up over the previous year by 6.1 percent. The strong economy combined with appealing mortgage rates are enticing potential homebuyers to purchase a home. The unemployment rate continues to hover below five percent, the level that economists consider to be full employment. The average 30-year fixed rate mortgage was recently 3.50. While it’s not the lowest it’s ever been, the rate continues to remain appealing to first-time and returning homebuyers.
If the dip in housing starts was concerning, builders themselves are not as worried. In fact, The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) recorded a 65 this month. Positive sentiment is any score above 50, and last year at this time the HMI was at 61.
Another reason for the high builder confidence is the recent news that the average U.S. household income grew more than five percent in 2015. The 5.2 jump is the largest year-over-year gain since 1967. Higher wages have more people looking to purchase a home. The strong housing market is also causing a shortage in the supply of available homes, further fueling builder confidence. Builders are struggling to keep up with the high demand of new homes, partly due to a shrinking workforce.
As the summer comes to a close, builders are working to catch up to the high demand for new homes. How do you think the housing market will fare in the coming months? Let us know in the comments.