US Housing Market Continues to Outperform Expectations

Lower mortgage rates in combination with a strong economic outlook once again caused the housing market to deliver better than expected numbers this month. Housing starts grew to almost 1.4 million units, more than 3%. Single family construction has strengthened outpacing every other type of construction. Permits for future construction is at a decade long high.

The numbers are even more impressive on a year over year basis, jumping by 13.6 percent for November. While the Federal Reserve is probably done cutting interest rates for the foreseeable future, the multiple cuts lowered interest rates significantly fueling not only demand but also optimism for homebuilders expressing plans to continue according to multiple surveys. The only things that seem so be holding builders back is the lack of appealing land and, ironically, a tight labor market that makes it difficult to hire, or may increases costs. While the mortgage rates have retreated a bit, adjustable rates for present homebuyers have mostly locked in for 2020.

The most popular rate, the 30 year fixed mortgage has risen about a quarter of a point, but is still at 3.75 percent on average near record lows. The interest rate is still more than a full point lower than its high last September. Investments in residential property even increased last quarter, a new sign of optimism after 18 months of decline. If the economy holds and interest rates still stay low, it is reasonable to expect retail housing prices to increase at a healthy clip in 2020. The positive effects may be outside of the major urban areas. Single family houses increased to almost one million units in November, easily beating October’s building and the best month in 2019.

Banks will suffer on the margins given the low interest rates, but refinancing is showing signs of continuing into 2020 and consumer optimism may continue to fuel a robust real estate market. The effects on the commercial real estate market, however, has not experienced the same growth over the year, but even in the multifamily home sector, the market rose 2.5% last month with more than 500,000 units being built.