The housing market was the bright spot in the Federal Reserve’s monthly economic snapshot released on Tuesday.

While consumer spending “softened,” business equipment spending was “sluggish,” and payroll growth has been “moderate,” the housing market has “rebounded,” the Fed said.

“Housing activity indicators displayed further gradual improvement in August,” the report said. “Single-family housing starts and permits have rebounded over the past three months. New and existing home sales rose in August. A still-strong labor market and low mortgage rates could continue to provide support to housing.”

Under the sub-head “Favorable mortgage rates spur the housing market,” the Fed pointed to August’s 7.1% gain in new-home sales to 713,000 at a seasonally adjusted and annualized pace, which was 18% above the year-earlier month. And, the Fed cited the 1.2% gain in existing home sales in August that put the sales pace 2.9% above a year earlier.

The report also singled-out homebuilding for mention. Housing starts jumped 12.3% in August, the highest level since June 2007, the Department of Commerce reported last month.

“It appears that single-family starts are finally beginning to respond to the steep decline of mortgage interest rates that has occurred over the past year,” the report said. “Single-family housing starts rose 4.4% in August, the third consecutive monthly increase, and are now up 3.4% on a year-over-year basis.”

The downside for the housing market has been the shortage of homes for sale, the report said.

“Favorable labor market conditions and a substantial decline in mortgage interest rates continue to act as positive forces,” the report said. “Inadequate inventories in affordable price ranges continue to be a drag on sales and to fuel home-price increases.”

The average U.S. rate for a 30-year fixed mortgage was 3.61% in September after declining for 10 consecutive months, according to Freddie Mac. It was the lowest monthly average since April 2016 when it was the same.