Housing Starts in U.S. Probably Climbed in May on Lower Rates
Builders in the U.S. broke ground on more homes in May as the real estate market showed signs of sustaining recent gains, economists said before a report today.
Starts climbed 0.7 percent last month to a 722,000 annual pace, the highest since October 2008, according to the median estimate of 76 economists surveyed by Bloomberg News. Building permits, a proxy for future construction, rose 1 percent to a 730,000 rate, the survey showed.
The combination of lower prices and record-low mortgage rates is underpinning demand and encouraging some builders to take on new projects. At the same time, competition from cheaper previously owned properties and stricter lending rules remain hurdles for an industry that’s been the weakest link for the economic expansion.
“Homebuilding is slowly climbing out of the very deep hole it fell into during the housing bust, but most of the strength is in multifamily housing rather than in single-family housing,” said Steven Wood, principal economist at Insight Economics LLC in Danville, California.
The Federal Open Market Committee, which sets the course of central bank policy, begins a two-day meeting today to decide whether more monetary stimulus is needed to boost growth as the labor market stumbles and risks from Europe’s sovereign debt crisis rise.
The housing starts figures are due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey for May ranged from 685,000 to 750,000.
Builder Confidence
A report yesterday showed confidence among U.S. homebuilders climbed in June to a five-year high. The Washington-based National Association of Home Builders/Wells Fargo sentiment index rose by 1 point to 29, the highest since May 2007.
Less expensive homes, low mortgage rates and enough of an increase in household income drove housing affordability to an all-time high in the first quarter, according to the National Association of Realtors.
The average rate on a 30-year, fixed-rate mortgage reached a record low of 3.67 percent in the first week of June, according to Freddie Mac.
The recovery helps explain gains in builder shares. The Standard & Poor’s Supercomposite Homebuilding Index, which includes D.R. Horton Inc. and PulteGroup Inc., has climbed 33 percent this year, outpacing a 6.9 percent gain in the broader S&P 500.
Household Formation
Another reason for optimism on the outlook for construction is that Americans are forming households faster than new homes are being built, said Douglas Yearley, chief executive officer of Toll Brothers Inc. (TOL), a luxury homebuilder based in Horsham, Pennsylvania.
“There is huge pent-up demand that has built over the last four years from this imbalance,” Yearley said at a June 14 conference. “It’s been seven years since this all began to turn down and you have people that are just ready to move on with their lives, take advantage of great interest rates.”
At the same time, three years after the end of the recession, a stronger housing recovery remains elusive. More distressed properties are going on the market, adding to inventory and pushing down prices.
Foreclosure starts grew in May on an annual basis for the first time since January 2010, after the largest U.S. loan servicers settled with states over faulty documentation, according to a report last week from RealtyTrac Inc., a real estate data provider in Irvine, California. Home seizures plunged 18 percent from a year earlier, the report also showed, a sign that banks are turning to repossession alternatives, RealtyTrac Inc. said today.
Weak job gains and stock market volatility also have consumers apprehensive about taking on debt.
“Our forecast is still for growth but we’re being conservative about it,” said Doug Duncan, chief economist at Washington-based Fannie Mae. “This will definitely be a year where we’ll see growth in the housing market.”
Bloomberg Table
===========================================
Housing Building
Starts Permits
,000’s ,000’s
===========================================
Date of Release 06/19 06/19
Observation Period May May
-------------------------------------------
Median 722 730
Average 721 730
High Forecast 750 770
Low Forecast 685 690
Number of Participants 76 53
Previous 717 723
-------------------------------------------
4CAST 700 690
ABN Amro 719 ---
Action Economics 725 730
Aletti Gestielle 710 730
Ameriprise Financial 720 730
Analytical Synthesis 726 736
Banca Aletti 715 720
Bantleon Bank AG 730 740
Barclays 730 ---
BBVA 720 725
BMO Capital Markets 733 737
BNP Paribas 700 ---
BofA Merrill Lynch 730 710
Briefing.com 710 720
Capital Economics 725 ---
CIBC World Markets 730 715
Citi 720 740
ClearView Economics 710 720
Comerica 725 ---
Commerzbank AG 720 720
Credit Agricole CIB 720 725
Credit Suisse 725 735
Daiwa Securities America 710 ---
Danske Bank 721 723
DekaBank 735 730
Desjardins Group 710 725
Deutsche Bank Securities 710 725
Deutsche Postbank AG 730 ---
Exane 730 ---
Fact & Opinion Economics 730 ---
First Trust Advisors 732 ---
FTN Financial 730 735
Goldman, Sachs & Co. 739 ---
Helaba 735 725
High Frequency Economics 725 750
HSBC Markets 685 715
Hugh Johnson Advisors 720 720
IDEAglobal 730 735
IHS Global Insight 710 736
Informa Global Markets 720 705
ING Financial Markets 719 727
Intesa Sanpaulo 695 700
J.P. Morgan Chase 715 760
Janney Montgomery Scott 713 740
John Hancock Financial 728 743
Landesbank Berlin 700 710
Landesbank BW 725 740
Maria Fiorini Ramirez 720 ---
Market Securities 730 ---
MET Capital Advisors 719 ---
Moody’s Analytics 724 740
National Bank Financial 722 728
Natixis 710 ---
Nomura Securities 710 740
Nord/LB 720 730
OSK Group/DMG 703 ---
Parthenon Group 733 753
Pierpont Securities 720 ---
PineBridge Investments 724 ---
PNC Bank 725 740
Raiffeisenbank International 750 770
RBC Capital Markets 705 ---
RBS Securities 720 ---
Scotiabank 725 ---
SMBC Nikko Securities 730 730
Societe Generale 750 770
Standard Chartered 720 728
Stone & McCarthy Research 715 720
TD Securities 730 725
UBS 725 ---
UniCredit Research 750 720
Union Investment 725 730
University of Maryland 725 730
Wells Fargo & Co. 715 ---
Westpac Banking Co. 717 741
Wrightson ICAP 725 730
===========================================
To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
Housing Starts in U.S. Probably Climbed in May on Lower Rates
Emile Wamsteker/Bloomberg
A Toll Brothers Inc. home under construction, in Randolph, New Jersey, on June 14, 2012.
A Toll Brothers Inc. home under construction, in Randolph, New Jersey, on June 14, 2012. Photographer: Emile Wamsteker/Bloomberg
June 18 (Bloomberg) -- James O’Sullivan, chief U.S. economist at High Frequency Economics, talks about Europe’s debt crisis, the outlook for Federal Reserve policy and the U.S. economy. O’Sullivan speaks with Tom Keene, Ken Prewitt, Scarlet Fu and Sara Eisen on Bloomberg Television’s “Bloomberg Surveillance.” (Source: Bloomberg)
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