U.S. housing starts rebounded significantly in August, increasing 9.6% month-on-month, after falling sharply the previous month. The latest data showed builders balancing inventory levels with improving demand, benefiting from lower borrowing costs, reflecting volatility in the housing market.

According to government data, new residential construction started at an annual rate of 1.36 million units in August, the fastest pace since April, exceeding economists' expectations of 1.32 million units and demonstrating strong demand in the housing market. Building permits, a forward-looking indicator of construction activity, also increased by 5% to an annualized rate of 1.48 million units, further boosting market confidence.

Construction of single-family homes grew strongly, with the annual rate increasing by nearly 16% to 992,000 units, the first monthly increase since February. In contrast, multifamily construction projects declined, demonstrating the segment's performance divergence.

Despite a pickup in new home construction, builders remain cautious as inventory levels of unsold homes remain at their highest levels since 2008. While demand appears to be rising due to lower mortgage rates, excess inventory remains a significant challenge.

Mortgage rates have recently fallen to their lowest levels since 2022, a trend driven by expectations that the Federal Reserve will ease monetary policy. This lower interest rate is expected to gradually boost home sales and reduce inventory, but this process may be slow.

Expectations of a recovery in the housing market have fueled investor interest in U.S. builders. The iShares U.S. Home Construction ETF has gained 20% in the past three months, hitting a record high. This reflects optimism that improving affordability and falling mortgage rates will ultimately boost demand for new homes.

Regionally, residential starts in the South increased 15.5%, successfully recovering from a hurricane-related downturn in July, when the region's construction pace fell to the lowest level since mid-2020; August starts in the Midwest and West There has also been an increase, further bolstering the positive momentum in housing construction activity.

While the latest data points to a pickup in home construction, experts remain cautious. According to analysts, builders are likely to remain conservative due to the high inventory of unsold homes. Experts predict that residential starts will likely continue to decline in the near term, with a more sustained recovery likely only after affordability improves further.

Overall, despite the positive rebound in August, the short-term outlook for residential starts remains neutral to slightly bearish, depending on the speed of Fed policy adjustments and the stability of mortgage rates.