, As Low Mortgage Rates Continue to Drive Homebuilding

Housing starts rose 1% in November, to 1.547 million at a seasonally-adjusted annualized rate. After plunging to 934,000 in April with the pandemic, housing starts have increased in six of the past seven months as construction sites have reopened, although they remain somewhat below their recent peak in January 2020. Single-family starts rose less than 1% in November to 1.186 million, while more volatile multifamily (apartment and condominium) starts rose 4% to 361,000.

Residential permits rose 6% in November to 1.639 million at a seasonally-adjusted annualized rate. This is the highest level of permits since late 2006, when the housing market was beginning to a cool after a surge in activity in 2002-2005. Permits for single-family homes rose 1% to 1.143 million, while multifamily permits rose 19% to 496,000.

Although some parts of the U.S. economy are slowing at the end of 2020 due to the coronavirus pandemic, homebuilding remains a source of strength. With the 30-year fixed mortgage rate near record lows at below 3% housing affordability is very good, and the pandemic has increased demand for new homes, especially single-family homes. The increase in permits in November points to continued growth in construction into 2021, although this week’s snowstorm in the Northeast could be a temporary drag in December.

With the Federal Reserve pledging to keep interest rates extremely low well into 2021, homebuilding will remain strong throughout next year, supporting overall economic growth. Although permits are at their highest levels in almost 15 years, the recent gains come after years of low levels of homebuilding, and there is little near-term risk of the oversupply problems that contributed to the Great Recession in 2007 to 2009.

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