Housing Starts in U.S. Surge on Apartment Construction; Permits Increase
Housing starts in the U.S. jumped more than forecast in June as better weather allowed the struggling industry to break ground on delayed projects.
Work began on 629,000 houses at an annual pace, up 15 percent from May and the highest level in five months, figures from the Commerce Department showed today in Washington. The level topped the most optimistic forecast in a Bloomberg News survey of 71 economists. Building permits, a sign of future construction, unexpectedly climbed 2.5 percent.
“A lot of this was due to some catch-up in activity that didn’t occur in April and May,” said Paul Dales, a senior economist at Capital Economics Ltd. in Toronto, who had the highest forecast in the Bloomberg survey. “I wouldn’t be surprised to see starts edge up gradually, but the bigger picture is it’s still at a very depressed level.”
While the increase points to stabilization in construction, declining home values and delays in processing foreclosures mean it may take years to clear the market of distressed properties. Lennar Corp. (LEN) is among builders saying the lowest point of the housing recession has probably already passed.
Housing starts were projected to rise to a 575,000 annual rate, according to the survey. Estimates ranged from 500,000 to 610,000 in the Bloomberg survey.
Stocks surged, sending the Standard & Poor’s 500 Index to its biggest gain in four months amid optimism lawmakers were moving closer to a deal that would cut the U.S. budget deficit and avoid default. The S&P 500 rose 1.6 percent to 1,326.73 at the 4 p.m. close in New York. The S&P Supercomposite Homebuilder Index increased 3.7 percent.
The Commerce Department revised May’s total to a 549,000 pace, less than a previously estimated 560,000.
Building permits rose to a 624,000 annual pace in June. They were projected to drop 2.3 percent to a 595,000 level, according to the survey median. The gain was led by a 6.9 percent jump in applications for work on multifamily units.
Construction of single-family houses increased 9.4 percent to a 453,000 rate in June, the most since November 2010, from the prior month. The monthly gain was the biggest since June 2009. Work on multifamily homes, such as townhouses and apartments, surged 30 percent to an annual rate of 176,000. It was up 100 percent from June 2010.
Demand for apartments and other multifamily housing that make up about a quarter of starts may be beginning to increase as foreclosures turn more Americans into renters.
Starts climbed in all four regions, led by a 35 percent jump in the Northeast and a 25 percent increase in the Midwest.
June was the 19th driest since 1901 and followed a May that was cooler than average, with severe weather occurring from the Plains to the Midwest and Northeast in the last half of the month, according to the National Climatic Data Center.
“We suspect that some of the recent volatility in starts has been weather-related,” economists at Morgan Stanley in New York, led by David Greenlaw, wrote in a research note. The economists estimated that, given the current rate of home building, it will take just over three years to absorb the excess supply of unoccupied houses based on their projections for household formation.
June starts compare with the 587,000 units begun last year, the second-fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959. Starts reached a peak of 2.07 million in 2005.
With an overhang of distressed homes making their way through the foreclosure pipeline, more cash investors are looking for bargain, foreclosed homes and eschewing new houses. At the same time, unemployment above 9 percent and strict lending standards make it harder for most Americans to take advantage of mortgage rates that are close to a record low.
Lender delays in processing home-loan defaults will push as many as 1 million foreclosure filings from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, RealtyTrac Inc., a housing data provider, said last week. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom as the housing slump extends into a sixth year.
“The high proportion of distressed sales are keeping downward pressure on house prices,” Bernanke said July 13 in testimony to the House Financial Services Committee. “The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs.”
Some builders see signs of stabilization. Miami-based Lennar, the third-largest U.S. homebuilder by revenue, last month reported second-quarter profits that beat analysts’ estimates on rising earnings at its distressed-investing unit.
“It is beginning to feel like the worst days of the housing market are getting behind us,” said Stuart Miller, chief executive officer of Lennar, on a June 23 conference call. “Stabilization and recovery will continue to be a slow and rocky process.”
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