Housing Starts in U.S. Climbed 2.3% in August

Photographer: Daniel Acker/Bloomberg

Worker Sean Smith nails down sheathing on the second floor of a home being built in Peoria, Illinois, on Aug. 15, 2012. Close

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Photographer: Daniel Acker/Bloomberg

Worker Sean Smith nails down sheathing on the second floor of a home being built in Peoria, Illinois, on Aug. 15, 2012.

New housing construction rose in August, boosted by the strongest pace of single-family home starts in more than two years that shows an improving U.S. real estate market.

Beginning construction climbed 2.3 percent to a 750,000 annual rate, less than forecast and restrained by a drop in the building of apartments, from a revised 733,000 annual pace in July, Commerce Department figures showed today in Washington. The median estimate of 85 economists surveyed by Bloomberg called for 767,000. Building permits cooled.

Mortgage rates near all-time lows and cheaper properties are driving sales at companies like Toll Brothers Inc. (TOL) and propelling construction, one of the economy’s few sources of strength. Tighter credit standards and unemployment above 8 percent for the last three years are hurdles for the industry.

“The residential construction industry continues to improve through year-end on low housing inventories and rising demand,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “Home sales are improving slightly and low mortgage rates certainly make housing far more affordable.”

Estimates in the Bloomberg survey for housing starts ranged from 740,000 to 800,000. The prior month was revised down from a previously reported 746,000 pace.

Stock-index futures maintained gains after the figures, with the contract on the Standard & Poor’s 500 Index expiring in December rising 0.2 percent to 1,455.3 at 8:59 a.m. in New York.

One-Family Homes

Construction of single-family houses climbed 5.5 percent to a 535,000 rate, the fastest since April 2010. Permits for the building of one-family homes increased 0.2 percent to a 512,000 annual pace, the highest since March 2010.

Work on apartments and other multifamily homes dropped 4.9 percent to an annual rate of 215,000.

Two of four regions showed an increase in total housing starts, reflecting a 21 percent surge in the Midwest and a 3.7 percent gain in the South.

Confidence among construction company leaders is the highest in more than six years. The National Association of Home Builders/Wells Fargo index of builder confidence jumped in September to 40, the strongest since June 2006, from 37 a month earlier, group said yesterday.

Mortgage Rates

Borrowing costs and home prices remain favorable. The average rate on a 30-year fixed mortgage held at 3.55 percent in the week ended Sept. 13, near the 3.49 percent on July 26 that was the lowest in data dating to 1971, according to McLean, Virginia-based Freddie Mac.

Homebuilders such as Red Bank, New Jersey-based Hovnanian Enterprises Inc. (HOV) and Toll Brothers are seeing increased demand.

“Due to the industry’s rebound and our increase in sales pace, our communities are selling out more quickly and literally caught us without being able to replenish as fast as we’d like,” Ara K. Hovnanian, the company’s chairman, president and chief executive officer, said on a Sept. 6 earnings call.

Toll Brothers, the largest U.S. luxury-home builder, reported a better-than-estimated profit and an increase in revenue for its third quarter ended July 31. The average price of the homes that the Horsham, Pennsylvania-based company delivered in the quarter climbed to $576,000 from $557,000 in the previous three months.

Rates, Prices

“The housing recovery is being driven by pent-up demand, very low interest rates and attractively priced homes,” Chief Executive Officer Douglas Yearley Jr. said on an Aug. 22 conference call with investors. “With an industry wide shortage of inventory in many markets, we are enjoying some pricing power.”

In July, sales of new homes rebounded to a two-year high, Commerce Department figures showed Aug. 23.

At the same time, distressed houses threaten to add to inventory and restrain prices, impeding some homeowners from relocating.

The industry may be helped by the Federal Reserve’s plan for open-ended purchases of mortgage-backed securities. Fed Chairman Ben S. Bernanke called housing “one of the missing pistons in the engine” last week as he announced the third round of quantitative easing, meant to boost growth and reduce unemployment.

“Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing,” he said.

Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd., said that while “it’s not going to make any sudden difference, on the margin it’ll help a little bit.”

To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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