Home construction in the U.S. is poised for a turnaround, economists and lenders say, as mortgage rates pull back from recent highs that curbed building in March.
Work started on 1.14 million homes last month, a drop of 0.3% from February, according to data published Friday by the U.S. Census Bureau and the Department of Housing and Urban Development. While such numbers are frequently volatile and subject to revision, they were well below the estimates of 1.23 million starts and 4.8% growth from economists surveyed by FactSet. Building permits tumbled 1.7% to 1.27 million.
Now that home-loan rates have dropped to the lowest in more than a year after the Federal Reserve paused on interest-rate hikes, however, the long-term outlook for home buyers — and, as a result, construction — is growing brighter.
“The recent dip in mortgage rates has improved momentum in the mortgage market on both refinance and purchases,” Bank of America Chief Financial Officer Paul Donofrio said earlier this week. New loans at the Charlotte, N.C.-based lender rose 22% in the first three months of the year, compared with the end of 2018, helping driving the bank’s mortgages to an average balance of $94 billion.
San Francisco-based Wells Fargo’s pipeline of not-yet-completed mortgages widened 78% from January through March to $32 billion, and home loans from New York-based JPMorgan’s consumer banking unit averaged $238.9 billion in the first quarter, up 3% from a year earlier.
“If buyers were hesitant last year, this environment has lured them back into the housing market,” Michelle Meyer, an economist with Bank of America, said in a report.
In the 19 weeks since November, the rate on a 30-year mortgage dropped from 4.94% to 4.06%, the most rapid decline since 2008, she said. On a 30-year mortgage for a $200,000 home, the shift would have reduced the monthly payment from $1,058 in November to $986 in March.
Existing-home sales, meanwhile, climbed nearly 12% in February from the month before, reaching an annual rate of 5.5 million, according to the National Association of Realtors, which attributed the growth partly to lower interest rates. More construction would likely solidify such growth, said Lawrence Yun, the organization’s chief economist.
That would boost local economies as well as increase consumer wealth, he said. A typical homeowner accumulated an estimated $8,700 in housing equity in the 12 months through February and $21,300 over the previous two years.
While new construction may remain bumpy in the next few months, British lender Barclays predicts a dovish Fed “should gradually provide support for housing construction, and housing demand more broadly.”
That’s good news for President Trump, who has made economic growth a priority, hoping to buoy it with looser regulations and tax cuts, and is pitching growth over the past three years in his 2020 re-election campaign.
“We’re the hottest economy in the world,” he said earlier this week at the Opportunity Zone Conference in Washington. “We weren’t when I first came. It was heading in the wrong direction, and now we’re in the right direction.”
