The November 2023 Residential construction report just came out today and there’s plenty of good news to be had if you’re an integrator whose primary business focuses on new home builds. There’s also plenty of good news for those who have been paying attention to the Federal Reserve over the past couple of weeks, with signs that all the interest rate hikes meant to curb inflation may be starting to come to an end soon, the conversation now turning to when the cuts will be coming.

November Residential Permits, Starts Up Year-over-Year

Let’s get into the construction numbers first. In November, privately‐owned housing units authorized by building permits were at a seasonally adjusted annual rate of 1,460,000, which is 2.5 percent below October’s numbers, but still 4.1 percent above November 2022. Meanwhile, single-family authorizations were up slightly over October (clocking in a rate of 976,000 while permits for buildings with five units or more were held at 435,000.

Housing starts came in at 1,560,000, a whopping 14.8 percent (±14.0 percent) above October and still an admirable 9.3 percent (±14.6 percent) above November 2022. Single family starts rose 18 percent (±12.9 percent) over October while the November rate for units in buildings with five units or more was 404,000.

Completions however, are still lagging. With a seasonally adjusted rate of 1,447,000, they are sitting 5 percent (±15.1 percent) above October, but, in YOY comparisons, they sit 6.2 percent (±15.2 percent) below November 2022. The breakdown of single-family housing completions puts them at 960,000, which also sits 3.2 percent (±13.2 percent) below the October rate. Buildings with five or more units had a completion rate of 472,000.

Looking at these numbers, it seems the West is leading the way in permitting applications, with most other regions down in permits in YOY comparisons. Every region, meanwhile, saw a massive increase in housing starts throughout November, though that obviously didn’t carry through in momentum to completions, where all except the south saw a drop in YOY completions, mainly carried by MDU construction.

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A Farewell to Interest Rate Hikes?

Earlier this month, in speaking on the current state of inflation, Jerome Powell, Chair of the Federal Reserve, announced that there would not be another round of rate hikes (as of right now). Of course, the Federal Reserve still can raise interest rates at any time if it deems it necessary, however, as of right now, the greater focus seems to be on determining when to introduce cuts.

The news was met with intense excitement on the investment side as the US stock market spiked the exact same day the news broke with the Nasdaq spiking nearly a full percentage point immediately following the news with the Dow Jones and S&P 500 indices experiencing similar snap growth as many analysts speculated the first of the rate cuts could come as early as March 2024, though the Reserve remained steadfast in its own Q3 prediction.

Regardless, the possibility of interest rate cuts in the near future is something that has perked up everyone, including builders. According to a report put out by the National Association of Home Builders on the new construction report, builder sentiment has finally broken its four month depression, raising three whole points entering into December.

“The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur home buyer demand in the coming months, with the HMI component measuring future sales expectations up six points in December,” said NAHB Chief Economist Robert Dietz in a press release from the NAHB.

“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Alabama.

Prior to this, builder sentiment had fallen to its lowest since December 2022 after a wave of price cuts made to help boost housing affordability in the wake of historically high interest rates. In October, the average rate on a 30-year fixed-rate mortgage reached a two-decade high, clocking in at 7.9 percent.

At the time of writing, that number has since dropped to 7.07% as a result of the Federal Reserve’s recent statements regarding rate cuts.

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