Groundbreaking on U.S. single-family homebuilding projects surged in May by the most in more than three decades and permits for future construction also climbed, suggesting the housing market may be turning a corner after getting clobbered by Federal Reserve interest rate hikes.
Still, even with the Fed skipping a rate hike this month for the first time since early 2022, credit conditions remain in the process of tightening, and that could make it challenging for builders heavily reliant on construction and development loans to keep pace with May's rebound in the months ahead.
The 291,000-unit increase in starts was the most since January 1990, and the 21.7% rise was the largest percentage gain since October 2016."While housing starts data tend to be volatile and this figure may be revised down in coming months, the enormity of the increase suggests that builders are broadly expanding operations this summer," Nationwide Senior Economist Ben Ayers said in a note.
A survey on Monday showed the National Association of Home Builders/Wells Fargo Housing Market index in June rose above the midpoint mark of 50 for the first time since July 2022 as a dearth of previously owned homes supported new construction. The index has rebounded by 77% since December.The average rate on the popular 30-year fixed mortgage has come down somewhat from last November's high above 7%. It averaged 6.
After lifting rates by 5 percentage points since March 2022, the Fed this month took a breather to assess the effects of its actions taken so far, though rate hikes are likely to resume next month with inflation still too high.
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