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America just had its best month for new home construction in 13 years

Posted January 17, 2020 10:19 a.m. EST

— Americans are in the market to buy houses again. New home construction rose nearly 17% in December, soaring to a level not seen since before the financial crisis.

The US housing market continues to recover, helped by a healthy American economy, a tight labor market with modestly rising wages, low inflation and low mortgage rates.

New residential construction surged to an annualized 1.6 million housing starts in December, hitting its highest level since December 2006. Economists had expected new home construction to fall. Housing starts exceeded expectations by a wider margin only twice since 1998, noted Paul Hickey of Bespoke Investment Group in a note to clients.

Mortgage rates fell to multi-year lows over the summer last year. Although they have rebounded some, rates are still favorable for buyers. This has inspired an upswing in home buying activity toward the end of 2019. But housing supply still lags demand, and affordability remains a problem for parts of the population.

Still, mortgage applications for new home purchases jumped 5% between November and December, and a whopping 38.7% year-over-year, according to the Mortgage Bankers Association. In the week of January 10, the average interest rate for a 30-year fixed rate mortgage for a balance of $510,400 or less was 3.87% -- a four-month low, according to MBA.

Some analysts remain skeptical that America's housing market is ready to boom again.

Although "all the ingredients are there for a strengthening of the housing construction market, it's just that today's results look over-the-top," cautioned Chris Rupkey, chief financial economist at MUFG.

One reason to take Friday's good data with a grain of salt is that building permits fell 3.9% in December.

"Housing starts have been below housing permits lately so today's figures look suspicious, meaning the good news cannot last," Rupkey said.

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