U.S. homebuilding surged to more than a 12-year high in August as both single- and multi-family housing construction increased, suggesting that lower mortgage rates were finally providing a boost to the struggling housing market.

The report from the Commerce Department on Wednesday also showed permits for future home construction rose to levels last seen in 2007. It added to upbeat data on retail sales that have pointed to an economy that is continuing to grow moderately rather than flirting with a recession as has been flagged by financial markets.

The Federal Reserve is expected to cut interest rates again on Wednesday to keep the longest economic expansion in history, now in its 11th year, on track. A year-long trade war between the United States and China has dimmed the economy’s outlook.

The U.S. central bank lowered borrowing costs in July for the first time since 2008.

“A prolonged period of lower mortgage rates has perhaps finally encouraged prospective homebuyers to get off the sidelines,” said John Pataky, executive vice president at TIAA Bank in Jacksonville, Florida. “I’d like to see a couple more months of data like this before I’m convinced the market’s fortunes have really changed.”

Housing starts jumped 12.3% to a seasonally adjusted annual rate of 1.364 million units last month, the highest level since June 2007, the government said. Data for July was revised up to show homebuilding falling to a pace of 1.215 million units, instead of decreasing at a rate of 1.191 million units as previously reported.

Economists polled by Reuters had forecast housing starts would advance to a pace of 1.250 million units in August. Building permits increased 7.7% to a rate of 1.419 million units in August, the highest level since May 2007.

Housing starts rose 6.6% on a year-on-year basis in August.

The housing market, the most sensitive sector to interest rates, had until now shown little signs of benefiting from the Fed’s monetary policy easing, which has pushed down mortgage rates from last year’s multi-year highs.

Economists and builders had blamed the lackluster performance on land and labor shortages. A survey on Tuesday showed confidence among homebuilders edged up in September, with builders reporting solid demand for homes.

Builders, however, said they “continue to grapple with ongoing supply-side challenges that hinder housing affordability, including a shortage of lots and labor.” They also noted that the U.S.-China trade tensions, which have undercut manufacturing, were “holding back home construction in some parts of the nation.”

The 30-year fixed mortgage rate has dropped more than 130 basis points to an average of 3.56%, according to data from mortgage finance agency Freddie Mac.


A separate report on Wednesday from the Mortgage Bankers Association showed applications for loans to purchase a home increased 6% last week from the prior week. That was the third straight weekly rise in purchase loan applications.

U.S. stock index futures were little changed and the dollar .DXY held gains against a basket of currencies after the release of the data, as investors awaited the Fed’s decision and statement on interest rates. Prices of U.S. Treasuries were trading higher.

Residential investment has contracted for six straight quarters, the longest such stretch since the 2007-2009 recession. The Atlanta Fed is forecasting gross domestic product to rise at a 1.8% annualized rate in the third quarter. The economy grew at a 2.0% rate in the April-June quarter, decelerating from the first quarter’s 3.1% pace.

Single-family homebuilding, which accounts for the largest share of the housing market, increased 4.4% to a rate of 919,000 units in August, the highest level since January. Single-family housing starts increased in the West, Midwest and the populous South, but fell in the Northeast.

Permits to build single-family homes vaulted 4.5% to a rate of 866,000 units last month, the highest since July 2018. Permits, however, continued to lag housing starts, suggesting limited scope for a strong rise in single-family homebuilding in the coming months.

Starts for the volatile multi-family housing segment soared 32.8% to a rate of 445,000 units in August, reversing the prior two months’ declines. Though rental inflation has slowed in recent months, economists do not expect the trend to continue as rental vacancy rates remain low.

Permits for the construction of multi-family homes increased 13.3% to a rate of 553,000 units last month.

Despite the surge in both starts and permits last month, housing shortages will likely persist and keep prices elevated.

Housing completions rose 2.4% to 1.294 million units last month. Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to close the inventory gap. The stock of housing under construction climbed 0.3% to 1.144 million units in August.

Reuters (Reporting by Lucia Mutikani; Editing by Paul Simao)