U.S. housing starts, building permits scale 12-year high

FILE PHOTO: Development and construction continues on a large scale housing project of over 600 homes in Oceanside, California, U.S., June 25, 2018. REUTERS/Mike Blake/File Photo GLOBAL BUSINESS WEEK AHEAD

WASHINGTON (Reuters) – U.S. homebuilding surged to more than a 12-year high in August as both single- and multi-family housing construction accelerated, 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. Housing and manufacturing have been the weak spots in the economy, which is now in its 11th year of expansion, the longest in history.

The jump in homebuilding activity last month added to strong retail sales data in suggesting the economy continues to grow moderately and is probably not flirting with a recession as has been flagged by financial markets. A year-long trade war between the United States and China has dimmed the economic outlook.

The Federal Reserve cut interest rates by another 25 basis points on Wednesday to blunt the hit on the economy from the trade tensions, but offered mixed signals on the next move. The U.S. central bank said “economic activity has been rising at a moderate rate.” The Fed 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 few signs of benefiting from the Fed’s monetary policy easing, which has pushed down mortgage rates from last year’s multi-year highs. Builders had blamed the lackluster performance on land and labor shortages.

A survey on Tuesday showed confidence among homebuilders rose in September, with builders reporting solid demand for homes. But builders said scarce building lots and labor remained a challenge and also noted that 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.

Firmer demand for housing was underscored by a separate report on Wednesday from the Mortgage Bankers Association showing applications for loans to purchase a home increased for a third straight week last week.

The dollar .DXY dollar rose marginally against a basket of currencies as investors focused on the Fed’s mixed signals on the future course of monetary policy. U.S. Treasury prices trimmed gains and stocks on Wall Street extended losses.

Stock market sentiment was also hurt by package delivery company FedEx’s (FDX.N) warning that full-year earnings would miss analysts’ estimates because of the U.S.-China trade war and the fallout from its split with customer-turned-competitor Amazon.com Inc

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