NEW YORK – Even before the United States Federal Reserve has begun cutting interest rates, the mere anticipation of such moves is already thawing the US housing market.

A series of reports this week showed activity coming back to life: Housing starts surged to a six-month high, sales of previously owned homes picked up from a 13-year low, and builder optimism was boosted by increased interest from prospective buyers.

Housing starts is an economic indicator that reflects the number of privately owned new houses on which construction has started in a given period.

Meanwhile, Americans’ home-buying plans rose in December by the most in more than a year.

The bounce-back comes as mortgage rates declined by more than 1 percentage point in eight weeks, the biggest drop over a comparable period since 2009. While the Fed on Dec 13 signalled it had finished its run of rate hikes and is preparing to make cuts in 2024, investors were already scooping up Treasuries, driving down yields along with borrowing costs – such as mortgage rates – that tend to reflect fluctuations in the bond market.

“There are definitely green shoots on the housing front,” said Wells Fargo & Co senior economist Charlie Dougherty. “You’re already starting to see the effects of expected lower interest rates boosting a lot of different facets of the housing market.”

Even though the overall pace of activity remains subdued compared with the pre-pandemic period, the recent data highlights that consumers are starting to dip their toes back into the market and builders revving up construction.

Perhaps the biggest case for optimism is the expectation from economists and markets that the Fed will ease policy in 2024 after an aggressive 16-month hiking campaign.

The decline in mortgage rates should start spurring some home owners to list their homes in the coming months, according to National Association of Realtors chief economist Lawrence Yun, as supply remains an issue.

Mortgage rates approached 8 per cent in October, the highest in more than two decades. But nearly two-thirds of owners have a mortgage rate below 4 per cent, making it unappealing to sell their current homes.

Mr Chad Reeves, who runs a Keller Williams brokerage location in Gwinnett County, Georgia, said his office is on pace to sell 200 homes in December. That is higher than the same month in 2022, and around the same level as December 2019 before the pandemic hit.

He saw the impact from the decline in mortgage rates first-hand.

The average rate for a 30-year fixed mortgage slid for the fifth straight week to 6.83 per cent in the week ended Dec 15, the lowest since June, and is expected to fall further as the Fed cuts its overnight lending rate. 

“The minute that rate came down into the sixes, we had numerous people,” Mr Reeves said. “The buyer market filled back up.”

The path forward rests largely on consumers and, by many indications, they are ending the year on a more jubilant note.

Confidence skyrocketed by the most since early 2021 in Conference Board think-tank’s survey for December as the outlook for jobs and inflation improved. 

It is the latest of surveys indicating that consumers – while still concerned about high prices – see the pace of price growth cooling and the broader economy improving.

The pace of home buying may remain subdued unless inventory is significantly freed up. The lack of available properties pushed home prices 4 per cent higher in November, the most in a year, and data showed sold properties were on the market for less than a month, a sign of high demand.

Still, some economists see the improvement in housing filtering through into economic activity in 2024.

Goldman Sachs Group boosted its fourth-quarter economic growth estimates to 1.7 per cent.

For now, the brighter outlook for borrowing costs and lack of supply creates an ideal set-up for home builders. And US home builder stocks have outperformed the S&P 500 index so far in December. 

Sales are up 20 per cent in 2023 for Mr Willy Nunn, president of home building company Homes by WestBay near Tampa, Florida, helped in part by fewer supply chain problems than 2022.

While it is still below what he called the “pandemic mania” when rates plunged, he still characterises the current pace as strong.

“We’re building up to a huge spring,” Mr Nunn said.

He said website traffic “looks really positive”, indicating pent-up demand is coming out. BLOOMBERG