Housing starts handily exceeded expectations in May, according to newly released U.S. Census Bureau data, increasing 21.7% from April, and that’s after April’s housing starts figures were revised 5.7% upward. That’s a booming pace, about as big a jump in housing starts as occurred after the pandemic struck and spurred a home-buying spree.
The U.S. needs to build about one million new homes annually to keep up with population growth but has lagged that pace for over a decade. The strong increase in housing starts occurred even as mortgage rates are higher than in years.
Housing starts are a key fundamental driver of economic growth because it involves buying services and goods, like hiring a tree-cutter, carpenter, and interior decorator as well as buying new furniture, BBQ, and floats for your pool.
Financial planning tips in current financial economic conditions:
Couples just starting out and parents with young children should consider preparing for lower interest rates. The Federal Reserve Bank’s monetary tightening campaign tamped down inflation psychology in 2023, and is expected to lower lending rates in 2024. Preparing now to accumulate the savings to buy a larger home or first home is prudent.
Pre-retirees should be considering their housing needs in retirement and the impact of lower interest rates on their portfolio. The 10 rate hikes by the Fed since March 2022 slashed the 12-month inflation rate from a June 2022 peak of 9.1% to May’s 4%. With inflation increasing in May by a scant 0.1%, the annual pace of inflation would be 1.2% -- much lower than the 2% target rate of the Fed. Now is a good time to plan your fixed-income holdings for the next five years. For the first time in years, lower interest rates could reward intermediate- and long-term bond investors with capital appreciation.
Retirees should be considering the impact lower rates would have on their portfolio and housing choices. Depending on local housing prices, selling your home to finance the cost of retirement may be advantageous. With the financial economic situation in the U.S. following the Covid, inflation and debt crises since February 2020, retirees may find different opportunities than in the recent crisis-filled years.