February 22, 2024

A worker moves lumber at a home under construction.

Photo: Angus Mordant/Bloomberg via Getty Images (Getty Images)

All the financial suspense of the past few months has been building toward this.

November saw construction get started on the annualized equivalent of 1.6 million US housing units, and new permits were filed on 1.5 million units. The latter rose year-over-year for the first time since July 2022, suggesting that homebuilders are excited about conditions conspiring to bring customers back into the market.

Housing starts began falling roughly when the Federal Reserve started raising interest rates. Shelter inflation, one of the biggest and stickiest sources of rising prices nationwide, began to come down as high interest rates discouraged homebuyers from diving into a market that became much more expensive during the pandemic. But now that the market is banking on those rates coming down next year, mortgage rates have begun to slip as well.

“Lower interest rates and a lack of resale inventory helped to provide a strong boost for new home construction in November,” said Alicia Huey, chair of the National Association of Home Builders (NAHB) and a developer from Birmingham, Alabama, in a statement on the figures.

The NAHB also noted yesterday (Dec. 18) that the industry’s excitement rose a bit in November for the first time since July, when the interest rate picture was far less certain.

“If the Fed is going to begin to actually cut rates, we believe that pent-up demand will be activated, and we will be well prepared,” said Stuart Miller, CEO of homebuilder Lennar, on an earnings call with investors last Friday (Dec. 15).

Money in the ceiling

Owning a home in the US is often a primary store and builder of household wealth, so if one assumes that house prices always go up—which they definitely don’t—then more houses getting built results in more new vectors for Americans to get richer. On the other hand, the conflation of economic security and home ownership means that about a third of the population is locked out of whatever wealth effects come from increased home prices.

Plus, when the home construction industry slows, it takes about 15% of the US economy down with it. That’s not to mention all the knock-on effects of people buying fewer couches and TVs to put in their new rooms.

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