Both housing starts and building permits jumped in August, adding more evidence that the housing construction sector is coming out of its deep slowdown from earlier this year.

Housing starts in August rose an impressive 9.6% from July’s revised estimates to a seasonally adjusted annual rate of 1.36 million units, according to data from the U.S. Census Bureau. The starts were 3.9% above last year’s August rate of 1.3 million units. Single-family housing starts for the month were at a rate of 992,000, nearly 16% above the revised July figure of 857,000.

The Census Bureau also reported that building permits for housing units rose 4.9% in August to a seasonally adjusted annual rate of 1.48 million. While the number is higher than July’s revised rate of 1.4 million units, it is still 6.5% below the rate from one year ago. Single-family home authorizations for the month were up 2.8% from July to an annual rate of 967,000.

Another area showing improvements was housing completions for August, which spiked by 9.2% from July to an annual rate of nearly 1.8 million units. That figure was a whopping 30% above the August 2023 rate of 1.37 million units. Single-family homes continued to be a laggard, unfortunately, with completions in August falling to an annual rate of 1.03 million, below the revised July rate of 1.09 million.

The declining interest rates in July and August — and the expectations of Federal Reserve cuts to come — have increased builder confidence which, in turn, has spurred the rise in the number of housing starts and permits, according to the National Association of Home Builders (NAHB). But the good news about more starts was tempered by the reality of changing market conditions.

“Thanks to lower interest rates, builders now have a positive view for future new home sales for the first time since May 2024,” said NAHB Chairman Carl Harris. “However, the cost of construction remains elevated relative to household budgets, holding back some enthusiasm for current housing conditions. Moreover, builders will face competition from rising existing home inventory in many markets as the mortgage rate lock-in effect softens with lower mortgage rates.”

With an interest rate cut announced this week, the Federal Reserve is beginning a cycle of cutting the rate that commercial banks use when they borrow and lend to each other overnight. Because banks will charge each other less to borrow money, those reductions are expected to be passed down to customers. NAHB Chief Economist Robert Dietz said that the Fed’s move should produce downward pressure on interest rates for mortgages, land development and home construction business loans, which will help lower the cost of housing construction.

“Lowering the cost of construction is critical to confront persistent challenges for housing affordability,” Dietz said.