Housing Starts Down, Homes Sales Up

Weekly Economic Review: November 18, 2024

Hurricanes in the South reduced housing starts, while lower mortgage rates and improved inventory levels drove existing home sales to their first annual increase in over three years.

Last week was light in terms of economic data announcements, but there were two important data releases: new residential construction and existing home sales.

Housing starts declined in October, mainly due to a slowdown in construction activity in the South, which was severely affected by Hurricanes Helene and Milton. Building permits experienced a slight decline, but permits for single-family homes increased to the highest level since April. The number of housing units under construction declined to the lowest level in three years.
Existing home sales advanced in October by the most since February, and posted their first year-over-year increase in more than three years, mainly driven by declining mortgage rates in Sep-tember. Housing inventory improved slightly in October but remained well below pre-pandemic lev-els. Home prices continued to climb to levels unaffordable for most first-time homebuyers, marking the 16th consecutive month of year-over-year price gains.

New Residential Construction: According to the U.S. Census Bureau, new home construction fell 3.1% to a 1.31 million annualized rate in October, which was lower than expected. Single-family housing starts, which traditionally account for most homebuilding, declined 6.9% in October to 970,000 annualized units. In contrast, multi-family housing starts increased 9.8% to 326,000 annu-alized units in October, although they remained below the 367,000-unit average from 1959 to 2024. Housing starts in the Northeast and the South posted declines of 32.9% and 8.8%, respectively, while those in the West increased 21.1%.

Building permits, an indication of likely future construction, decreased 0.6% to a 1.42 million annual-ized rate in October, lower than the expected 0.7% increase. The Northeast was the only region with a positive monthly increase (13.4%) in building permits. Permit activity generally mirrored the data for housing starts. Permits for future construction of single-family homes increased 0.5% to 968,000 annualized units, a six-month high, while multi-family building permits declined 3% to 393,000 annualized units.

Existing Home Sales: According to the National Association of Realtors, sales of existing homes increased by 3.4% to 3.96 million annualized units in October from 3.84 million units in September, higher than the expected gain of 2.9%. On an annual basis, sales advanced 2.9% from 3.85 million units a year ago.

All four major U.S. regions posted sales increases in October. In the West, sales rose 1.3% in Oc-tober to an annual rate of 770,000, which was also up by 8.5% from a year earlier. The median sales price for all four regions increased by 4.0% from a year ago to $407,200, marking the 16th consecutive month of year-over-year price gains. The median price in the West was $627,700, up by 4.4% from a year ago.

The inventory of unsold existing homes for sale increased by 0.7% (or 19.1% from a year earlier) to 1.37 million in October, still well below the 1.9 million pre-pandemic level. The Months Supply of Inventory (MSI), measuring the number of months it would take for the current inventory of homes on the market to sell at the current sales pace, was 4.2 months in October, down from 4.3 months in September but up from 3.6 months year-over-year. A four-to-seven-month supply is considered a healthy balance between supply and demand.

In October, 19% of the homes sold were sold above the listing price. First-time homebuyers ac-counted for 27% of sales, up from 26% in the prior month but down from 28% year-over-year. All-cash sales made up 27% of purchases, a decrease from 30% in September and from 29% a year ago. 59% of the homes sold were on the market for less than a month, compared to 57% in the prior month. Homes stayed on the market for an average of 29 days in October, up from 28 days in September and 23 days a year ago.

On a concluding note, existing home sales increased in October, resulting in the first annual in-crease since July 2021. This was mainly driven by lower mortgage rates in the prior month, a resil-ient labor market, and continued economic growth. According to Freddie Mac, the average 30-year fixed-rate mortgage rate hit a two-year low on September 26, 2024, at 6.08%. This significantly boosted home contract closings in October. Since then, however, the average 30-year fixed-rate mortgage continued to climb to 6.84% as of November 21, 2024. High mortgage rates have dis-couraged many existing homeowners from selling their homes and giving up their low mortgage rate and payment. It now appears that more homeowners expect high mortgage rates to stay for longer, so they’ve been slowly listing their homes for sale. The November 21, 2024, forecast pub-lished by the Mortgage Bankers Association projects a modest decline in the 30-year fixed-rate mortgage, declining to 6.6% by the end of this year and 6.4% by the end of 2025.

Four Fed officials spoke at various events last week, offering mixed views on monetary policy. The market priced in a 50% chance of a 25-basis point rate cut in December, a 74% chance of a 25-basis point rate cut in January, and a 100% chance of a 25-basis point rate cut in March. From this December to next December, the market expects a 100% probability of a 1% rate cut with a low 63% chance of a 25-basis point rate cut. The market expects that the Fed will take a gradual approach to rate cuts due to sticky inflation, strong economic growth, and inflationary fiscal poli-cies.

The Atlanta Fed’s GDPNow model projects GDP growth of 2.6% in the fourth quarter. The two- and ten-year Treasury yields ended at 4.37% and 4.41%, respectively. While the short-end curve was slightly up, the long-end curve was slightly down. As a result, the two-year Treasury yield was up by 6 basis points, but the ten-year Treasury yield was down by 2 basis points compared to their levels a week ago.

Mark Yoon, CFA CPA
EVP & CFO of Commercial Bank of California

Thomas McCullough
EVP of Commercial Bank of California

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