WASHINGTON D.C.: A Commerce Department report issued this week reported that amidst an acute shortage of previously owned houses, in July US single-family homebuilding surged and permits for future construction rose.

However, mortgage rates increased again to near two-decade highs, which could slow the housing market rebound.

The figures followed news that retail sales rose strongly in July, which prompted economists to upgrade their growth estimates for the third quarter, was another sign of the US economy avoiding forecasts of a recession.

Due to declining inflation, some economists are not expecting another interest rate hike next month.

Christopher Rupkey, chief economist at FWDBONDS in New York, said, “Housing generally has shown resilience, but Fed officials may overlook this latest news of strengthening demand in the economy when it comes to judging whether to hike rates again this year because of the progress made on the inflation front,” as quoted by Reuters.

Meanwhile, single-family housing starts, which account for the bulk of homebuilding, rose 6.7 percent to a seasonally adjusted annual rate of 983,000 units last month, compared with 9.5 percent year-on-year in July.

The US housing market has stabilized after being hit by the Federal Reserve’s aggressive monetary policy tightening, but further improvements could be stifled by the renewed increase in mortgage rates.

According to latest data from mortgage finance agency Freddie Mac, the average rate on the popular 30-year fixed mortgage rose to 6.96 percent over the past weeks.

Since March 2022, the Fed has raised its benchmark overnight interest rate by 525 basis points to the current 5.25 to 5.50 percent range.

“The need for new single-family homes, which is driven by scarce existing home inventory, should keep a floor under single-family
Construction,” said Nancy Vanden Houten at Oxford Economics in New York, as reported by Reuters.

Despite the rise in starts, housing supply is likely to remain tight. The number of houses approved for construction that have yet to be started fell 0.4 percent to 277,000 units in July.