WASHINGTON, Sept 20 (Reuters) – U.S. homebuilding unexpectedly increased in August as rising rents boosted the construction of multi-family housing to the highest level in more than 36 years, but soaring mortgage rates and high prices are undercutting the overall housing market.
The report from the Commerce Department on Tuesday showed permits for future homebuilding plunged to levels last seen during the first wave of the COVID-19 pandemic in the spring of 2020. Homebuilding is also being hobbled by persistent supply chain bottlenecks, which are raising prices for materials.
The Federal Reserve’s aggressive monetary policy tightening has significantly weakened the housing market. In contrast, other sectors of the economy, like the labor market, have shown incredible resilience despite the Fed’s attempts to cool demand.
“Since the Fed is signaling that it isn’t going to stop raising rates until it tames inflation, the housing market will continue to be weak, with the potential it experiences its own recession,” said Ryan Sweet, a senior economist at Moody’s Analytics in New York. “This isn’t entirely bad news, as the housing market was red-hot.”
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