(Noted News) — Housing starts in the U.S. exceeded expectations in October, while building permits stayed flat. This signaled that the record-low mortgage rates could be keeping the housing market afloat in the face of widespread economic damage stemming from COVID-19.
The report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development noted a sizable rise in housing starts, an unchanged amount of building permits, and a fall in housing completions.
Privately-owned housing starts in October kept a seasonally adjusted annual rate of 1,530,000, which is 4.9% above September’s rate of 1,459,000 and is 14.2% above the October 2019 rate of 1,340,000. This was 300,000 more than expected.
Single-family housing starts in October were recorded at 1,179,000, which is 6.4% above September’s rate of 1,108,000 and the highest ever recorded since April 2007.
According to Freddie Mac, another catalyst of the surprisingly buoyant housing market—besides the mortgage rates—is the record amount of mortgage forbearance.
“The COVID-19 pandemic has led to unprecedented levels of mortgage forbearance. On March 18, 2020, Freddie Mac extended broad mortgage relief to borrowers unable to make their mortgage payments because of COVID-19, regardless of whether or not they have contracted the virus. Included among these relief options were forbearance plans that could provide borrowers with payment relief for up to 12 months, while suspending borrower late charges and penalties.”
The exodus from urban areas due to the rise of the home-office is another likely contributor to the increase in new build construction and the survival of the housing market. The same phenomenon is happening in Europe. In countries like the Czech Republic, suburban home sales are up over 12%, with their prices surging more than 28%.
Construction is one of the few industries where workers are ostensibly not affected by coronavirus restrictions, with most companies continuing work throughout the pandemic.
It is hard to believe that the housing market can continue to sustain this sort of health; COVID-19 cases are exceeding 100,000 daily, with many governments entering fresh lockdowns which will undoubtedly set the economy back again.
Chris Rupkey, chief economist at MUFG in New York said, “The million-dollar question remains how long the recovery in housing can continue as the shocking number of new coronavirus cases is paralyzing commerce in many parts of the country and leading to new restrictions and lockdowns.”
However, Freddie Mac still doesn’t see any significant change to the mortgage rates for at least another year.
“Given weakness in the broader economy, the Federal Reserve’s signal that its policy rate will remain low until inflation picks up, and no signs of inflation, we forecast mortgage rates to remain flat over the next year. From the third quarter of 2020 through the end of 2021, we forecast mortgage rates to remain unchanged at 3%.”
Despite being a small percentage of the total American GDP, a rising housing market generally bleeds into other areas more than any other sector because of its ability to encourage consumer spending.