The Fed’s monetary policy is stifling new construction
Since mortgage rates have headed higher again, I was anticipating that today’s housing starts report would be the last decent print before the effects of higher mortgage rates hit the builders, but even this report was disappointing.
We had a good few months of positive builder confidence data for the new home sector and positive purchase application data for existing home sales. However, mortgage rates shot up again after the Federal Reserve cut rates on Sept. 18. Simply put, Fed policy is still too restrictive for housing growth, and rising rates over the last few weeks won’t help. This has been so confusing for the American consumer that CNBC asked me to talk about this topic today.
With homebuilders completing more homes in their backlog and 5-unit permits basically at recessionary levels, we are at the stage where policy is going to impact the future supply of shelter. Let’s take a look at the report.From Census: Building permits: “Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,428,000. This is 2.9 percent below the revised August rate of 1,470,000 and is 5.7 percent below the September 2023 rate of 1,515,000.”
We are at recessionary levels for housing permits for 5-unit housing. Anyone who thinks we are on the verge of a housing construction boom is kidding themselves, with the policy still this restrictive. Now, over time, the falling Fed funds rate can create better demand for apartment construction, but that’s not today, my friends. I am just hoping that we are closer to the bottom of housing permits for 5-unit construction, so eventually, when Fed policy is less restrictive, we can build more apartments.“Single-family authorizations in September were at a rate of 970,000; this is 0.3 percent above the revised August figure of 967,000. Authorizations of units in buildings with five units or more were at a rate of 398,000 in September.”
This was the most disappointing aspect of the report; I had anticipated better growth in single-family permits because the recent uptick in mortgage rates shouldn’t have been fully felt here yet. However, we know that mortgage rates above 6.75% have made the builders less enthusiastic about issuing many single-family permits. We also have to remember that smaller homebuilders don’t have the luxury of the more prominent homebuilders who are paying down mortgage rates to sell more homes. Again, it isn’t a positive for America that rates just shot up again.
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