The number of housing starts ticked up in April despite pressure from high mortgage rates, a modestly reassuring sign for the health of the economy.
Housing starts, the change in the number of new residential buildings that began construction, rose 5.7% from March to this past month, according to a Thursday morning report from the Census Bureau.
They are now at a seasonally adjusted annual rate of 1.44 million. From April 2023, they fell 2%.
For permits to build, which are seen as a proxy for future construction, the rate of new permits last month was 2% below the rate in April of last year.
As of this week, the average rate on a 30-year, fixed-rate mortgage was nearly 7%, according to Mortgage News Daily, which tracks daily changes in rates. That is down from a recent peak of above 8%, although is still far higher than in the years prior to the pandemic.
There has been a unique dynamic at play in the housing market because of the higher mortgage rates. Many people are holding on to their existing homes and waiting to sell until mortgage rates are lower, creating a shortage of existing homes for sale.
At the peak of the pandemic, the Federal Reserve cut its interest rate target to near zero, and mortgage rates plunged to ultralow levels. At one point in early 2021, people were locking in 2.5% mortgages — the lowest level in postwar modern history.
The low rates prompted an explosion of homebuying and investment, generating an increase in home construction. But then, the dynamic began shifting fast when inflation increased, and the Fed hiked interest rates in response, thus pushing mortgage rates to the highest level since the turn of the century.
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New home sales increased 8.8% from February to 693,000, according to a recent report from the Census Bureau. The number of new home sales is 8.3% higher than it was in March of last year, owing in part to dampened inventory of existing homes.
Existing home sales in March fell 4.3% to a seasonally adjusted annual rate of 4.19 million, the biggest decline in over a year. The rate of existing home sales was down 3.7% from the year before.
