The U.S. housing market continues to face significant headwinds, particularly in new home construction. October data reveals a notable downturn in single-family housing starts, driven by both natural disasters and persistently high mortgage rates.

Dual Impact of Hurricanes and Interest Rates

Hurricanes Helen and Milton severely disrupted housing activities in the southeastern United States, directly impacting market vitality in the region. At the same time, although building permits showed a slight increase, rising mortgage rates suppressed home-buying demand, further weighing down construction activity. According to the U.S. Department of Commerce, single-family housing starts fell 6.9% in October, with an annualized rate dropping to 970,000 units. This represents a significant decline compared to the revised September figure of 1.042 million units.

Limited Supply and Elevated Borrowing Costs

While the spring season saw some recovery in new home construction, this momentum was hindered by several constraints. The supply of new homes remains at its lowest level since 2008, exacerbated by the damage from recent hurricanes. Additionally, persistently high borrowing costs have placed greater financial pressure on potential homebuyers, creating a dual supply-demand bottleneck in the market.

Policy Expectations and Shifts in Confidence

Although the Federal Reserve initiated rate cuts in September, which temporarily eased mortgage rates, these rates quickly rebounded amid strong economic data and concerns over inflationary pressures. Mortgage rates have now aligned with 10-year Treasury yields, which are at a five-and-a-half-month high.

On a brighter note, policy expectations have brought some optimism to the market. According to the National Association of Home Builders (NAHB), the November builder confidence index rose to a seven-month high. Builders expressed growing optimism that Republican dominance in Washington would lead to reduced industry regulation. This shift in policy sentiment has offered a glimmer of hope.

Outlook and Considerations

The continued pressure from high mortgage rates suggests that the recovery of new home construction will remain sluggish. However, potential policy adjustments and the gradual receding of hurricane impacts could provide some positive momentum. Moving forward, key areas to watch include the extended effects of rate cuts, improvements in housing supply, and a rebound in consumer confidence. With adjustments on multiple fronts, the U.S. housing market may eventually experience a steady and rational recovery process.