Housing Starts in U.S. Probably Climbed to Almost Four-Year High

Sept. 17 (Bloomberg) -- On today's Insight & Action, Adam Johnson reviews which makes the best investment; stocks, bonds or a house. He speaks on Bloomberg Television's "Street Smart." (Source: Bloomberg)

New-home construction in the U.S. probably rose in August to the highest level in almost four years, showing residential real estate is sustaining a recovery even as the broader economy sputters, economists said before a report today.

Builders broke ground on 767,000 houses at an annual rate, up from 746,000 in July and the most since October 2008, according to the median estimate of 85 economists surveyed by Bloomberg News. Another report may show sales of existing homes advanced for a second month.

Builders such as Hovnanian Enterprises Inc. (HOV) are gaining confidence as record-low mortgage rates, lower prices and rising rents make buying a house more attractive. At the same time, unemployment, stagnant wages and tight credit remain obstacles to further strengthening in the industry that helped precipitate the recession.

“We expect housing to be a bright spot,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York. Nonetheless, “there’s still foreclosures, there’s still delinquencies, people are still cutting on mortgage debt.”

The starts data are due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 740,000 to 800,000. Building permits, a proxy for future construction, may have declined 1.9 percent to a 796,000 annual rate after reaching a four-year high in July, according to the survey median.

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.

At 10 a.m., the National Association of Realtors may report sales of previously owned homes climbed 2 percent to a 4.56 million annual rate in August from 4.47 million the prior month, the survey median showed.

Gaining Confidence

Construction company leaders are becoming more optimistic. The National Association of Home Builders/Wells Fargo index of builder confidence climbed in September to the highest level in more than six years, the Washington-based group said yesterday.

Investors have adjusted accordingly. The Standard & Poor’s Supercomposite Homebuilder Index (S15HOME) has increased 77 percent this year through yesterday, outpacing a 16 percent gain for the broader S&P 500 (SPX) Index.

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 a record-low of 3.49 reported July 26 in data dating to 1971, according to McLean, Virginia-based Freddie Mac. The median price of a new house was down 2.5 percent in July from the same time last year, according to figures from the Commerce Department.

Sales Improving

Demand is improving as a result. Sales of new homes rebounded in July to a two-year high, Commerce Department figures showed Aug. 23. Red Bank, New Jersey-based Hovnanian Enterprises is among builders trying to keep up.

“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. “We continue to look for new land opportunities throughout all of our markets.”

Another reason for the boost in sales may be that rents are climbing. The cost of leasing a primary residence was up 2.6 percent in the year ended August, exceeding the 1.7 percent gain in average hourly wages during the same period, according to data from the Labor Department.

Rising rents may also appeal to investors, said BNP Paribas’s Shulyatyeva. “People can buy very cheap houses, rents are on the rise -- they can get a good yield out of it,” she said.

Fed Aid

The industry may be further 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.

                         Bloomberg Survey  =====================================================                            Housing Building    Exist                             Starts  Permits    Homes                             ,000’s   ,000’s     Mlns =====================================================  Date of Release              09/19    09/19    09/19 Observation Period            Aug.     Aug.     Aug. ---------------------------------------------------- Median                         767      796     4.56 Average                        768      797     4.56 High Forecast                  800      844     4.85 Low Forecast                   740      760     4.45 Number of Participants          85       56       78 Previous                       746      811     4.47 ---------------------------------------------------- 4CAST                          760      770     4.59 ABN Amro                       761     ---      4.54 Action Economics               775      790     4.62 Aletti Gestielle               760      790     4.55 Ameriprise Financial           765      800     4.55 Banca Aletti                   754      810     4.62 Bank of the West               770      792     4.58 Bank of Tokyo-Mitsubishi       800      800     4.50 Bantleon Bank AG               780      800     4.60 Barclays                       750     ---      4.56 BBVA                           760      800     4.57 BMO Capital Markets            758     ---      4.51 BNP Paribas                    780     ---      4.55 BofA Merrill Lynch             770     ---      4.50 Briefing.com                   775      775     4.55 Capital Economics              765     ---      4.65 CIBC World Markets             775      785     4.65 Citi                           770      790     4.55 ClearView Economics            740      760     4.55 Comerica                       767     ---      4.56 Commerzbank AG                 780      820     4.60 Credit Agricole CIB            780      795     4.50 Credit Suisse                  775      805     4.60 Daiwa Securities America       775     ---      4.60 Danske Bank                    790      795     4.51 DekaBank                       755      780     4.60 Desjardins Group               775      800     4.60 Deutsche Bank Securities       765      780     4.50 Deutsche Postbank AG           790     ---      --- DZ Bank                        758      790     4.49 Exane                          780     ---      4.56 Fact & Opinion Economics       760     ---      4.50 First Trust Advisors           754     ---      4.49 FTN Financial                  755      775     4.57 Goldman, Sachs & Co.           783     ---      4.56 Helaba                         780      780     4.60 High Frequency Economics       780      790     4.50 HSBC Markets                   758      787     4.58 Hugh Johnson Advisors          785     ---      4.59 IDEAglobal                     755      800     4.55 IHS Global Insight             762      828     4.52 Informa Global Markets         750      785     4.54 ING Financial Markets          782      784     4.50 Insight Economics              755     ---      4.50 Intesa Sanpaulo                750      790     --- J.P. Morgan Chase              765      825     4.55 Janney Montgomery Scott        755      817     4.54 Jefferies & Co.                760      770     4.60 John Hancock Financial         770      796     4.60 Landesbank Berlin              780      815     --- Landesbank BW                  775      800     --- Lloyds Bank                    765      795     4.50 Maria Fiorini Ramirez          765     ---      4.60 Market Securities              767     ---      4.83 MET Capital Advisors           790     ---      4.50 Mizuho Securities              754     ---      4.52 Moody’s Analytics              778      808     4.45 Morgan Stanley & Co.           750     ---      4.60 National Bank Financial        780      790     4.55 Natixis                        760     ---      4.56 Nomura Securities              779      844     4.85 Nord/LB                        760      800     --- OSK Group/DMG                  770     ---      4.56 Oxford Economics               760      805     4.48 Pierpont Securities            770     ---      4.57 PineBridge Investments         783     ---      4.70 Raiffeisenbank International   800      820     4.60 Raymond James                  770      810     4.52 RBC Capital Markets            755     ---      4.50 RBS Securities                 755     ---      4.65 Regions Financial              780     ---      4.62 Renaissance Macro Research     760      790     4.60 Scotiabank                     760     ---      4.50 SMBC Nikko Securities          770      780     4.60 Societe Generale               770      825     4.55 Standard Chartered             765      785     4.61 Stone & McCarthy               760      790     4.53 TD Securities                  790      800     4.50 UBS                            775      800     4.50 UniCredit Research             780      780     --- Union Investment               760      800     --- University of Maryland         765      798     4.61 Wells Fargo & Co.              774     ---      4.58 Westpac Banking Co.            746      819     4.58 Wrightson ICAP                 770      800     4.55 ===================================================== 

To contact the reporter 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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