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Macro Flash Report

Housing Market

Takeaway:

August housing starts and building permits data underscore the dynamic the industrial sector has been waiting for all year. As mortgage rates have fallen to 2-year lows, underlying demand is ready to engage. While the impact to the broader market will take longer than it did for housing, this is an encouraging signal for next years steel demand.

Housing Starts & Building Permits

In August, Housing Starts soared by 9.6% to an annualized rate of 1,356k, significantly exceeding market expectations of a rebound to 1,310k. This marks the sharpest rise in nine months, increasing from a downwardly revised -6.9% decline (1237k annual units) in July.

  • This increase was driven by single-family home starts jumping by 8% to 992k units, which offset multi-family units which fell by -6.7% to 333k units.

Building Permits, a forward-looking indicator of housing activity, rose by 4.9% to a seasonally adjusted rate of 1,475k, the highest in five months and notable above the forecasted 1,410k. This marks a steep rebound from -3.3% (1406k units annually) in July.

  • Permits for multi-unit buildings were the main boost, rising by 8.4% to 451k, and single-family permits furthered this rise, increasing by 2.8% to 967k.

In the near term, the NAHB Housing Market Index, which measures builder sentiment, increased to 41 in September, up two points from 39 in August, breaking four consecutive months of decline. All three main indices were up, signaling cautious optimism as the index remains below 50.

  • Currently sales conditions improved slightly (+1 to 45), and sales expectations for the next six months climbed to 53 (+4).
  • Traffic of prospective buyers also increased (+2 to 27), while the percentage of builders cutting prices fell for the first time since April (-1 to 32%).

Looking forward, while high mortgage rates and home prices have kept housing inventories elevated and caused builders to scale back, this trend may be shifting. As of September 12th, the MBA 30-Year Mortgage Rate fell to 6.15%, the lowest in two years, marking seven straight week of declines (a total of -67bps). This drop is tied to falling long-term Treasury yields as the Fed begins its rate-cutting cycle. In turn, this activity has also spurred a weekly 14.2% surge in MBA Mortgage Application, the fourth consecutive weekly increase and the sharpest rise since mid-August’s 18-month high.