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Are Rate Cuts Driving Housing Recovery?

home buildersHousing starts in August hit a seasonally adjusted yearly rate of 1.364 million according to recent data from the U.S. Census Bureau, which Barron’s economics commentator Matthew C. Klein notes is an indicator that the housing recession that started at the beginning of 2018 is over and the recovery is in full swing.

Privately‐owned housing starts in August were at a seasonally adjusted annual rate of 1,364,000.  This is 12.3% above the revised July estimate of 1,215,000 and is 6.6% above the August 2018 rate of 1,279,000.  Single‐family housing starts in August were at a rate of 919,000; this is 4.4% above the revised July figure of 880,000. The August rate for units in buildings with five units or more was 424,000.

Klein states that the higher number of housing starts along with the 1.419 million in authorizations “make August the best single month for home building since the summer of 2007.”

Recent recovery, Klein suggests, has been a product of the Fed’s changing opinions about the appropriate level of short-term interest rates.

“Traders’ expectations of rate cuts have helped lower mortgage costs and supported the rebound in construction,” he said. “Disappointing those expectations would therefore lead to higher mortgage rates and less construction. While that could be desirable under certain circumstances, Fed officials should be aware of the potential trade-offs.”

How will the rate drop impact mortgage rates in the near future? In a statement realtor.com’s Director of Economic Research Javier Vivas discussed current market conditions and what to look for in the wake of rate cuts.

“The cut in the Fed’s short term rates is unlikely to lead to noticeable drops in mortgage rates over the immediate horizon,” Vivas said. “Rates remain about a percentage point lower than a year ago. However, despite higher purchasing power, consumers faced declining housing inventory in August, especially at the entry level. For buyers, today’s vote removes the urgency to sign a purchase contract, as expectations of continuing low mortgage rates collide with increasing clouds over the economic horizon.”

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.

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