Currently, 30-year mortgage rates persist at around 7%, but low inventory has spurred a surge in housing activity. In May, housing starts experienced a remarkable rise of 21.7% to reach a 1.6 million annualized rate, marking the highest level since April 2022. Concurrently, permits rose by 5.2% to reach approximately 1.5 million. These figures underscore the renewed momentum in the housing market with the demand-supply dynamics driving increased construction activity.
Meanwhile, the NAHB Housing Market Index1 has been consistently improving, signaling growing confidence among builders. The positive sentiment reflects the perception that market conditions are favorable, further fueling housing sector growth.
It is worth noting that the number of homes under construction is currently at its highest level since the 1970s.
While the housing market’s recent developments offer promising prospects for economic growth, risks are still skewed to the downside so long as we are asked to hold the uncomfortable position of high-interest rates. To that extent, the future path of inflation and its impact on monetary policy will likely shape the trajectory of economic growth. Nonetheless, a transition from being a drag to providing a tailwind would be a welcome development for the housing sector. How this unfolds is something we will be paying close attention to, ensuring that our investment strategies align with the evolving dynamics.
1Factset, June 19, 2023
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