New-home construction unexpectedly climbed to a four-year high in October, more evidence of a revival in the industry that’s helping propel the U.S. economy.
Housing starts rose 3.6 percent to a 894,000 annual rate, the fastest since July 2008 and exceeding all estimates in a Bloomberg survey, Commerce Department figures showed today in Washington. The median forecast of 82 economists called for an 840,000 pace. Permits for the construction of single-family homes also advanced to the highest in four years.
“The housing industry is in a recovery,” said Larry Sorsby, chief financial officer of Red Bank, New Jersey-based Hovnanian Enterprises Inc. (HOV) “Those builders that survived the unprecedented downturn of the last six years are in a good position not only to survive but to thrive.”
Record-low mortgage rates and a lower risk that property values will keep falling may continue to attract buyers, giving the economy a lift and benefiting companies such as Hovnanian, New Jersey’s largest builder. The Federal Reserve is buying $40 billion a month in housing debt to keep down borrowing costs, and Chairman Ben S. Bernanke said today the industry will be a “source of economic growth.”
Today’s figures indicate that “we’ll have bigger support from housing” for the economy, said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who projected 870,000 starts at an annual rate. “Excess supply has been wound down and there’s a steady increase in demand. That’s good for construction.”
Stocks were little changed as a tumble in Hewlett-Packard Co. shares overshadowed the housing data. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,387.82 at the close in New York after advancing yesterday by the most in two months.
A separate report today from the Labor Department showed that payrolls increased in 35 states in October, while the unemployment rate dropped in 37, showing much of the job market is gaining traction.
Housing starts are the latest in a batch of data showing a pickup in momentum. An index of homebuilder sentiment rose to a six-year high this month, and sales of existing homes were stronger than forecast in October. Residential construction added 0.3 percentage point to third-quarter economic growth of 2 percent.
“The housing market has shown some clear signs of improvement, as home sales, prices and construction have all moved up since early this year,” Bernanke said today in a speech in New York. “These developments are encouraging, and it seems likely that, on net, residential investment will be a source of economic growth and new jobs over the next couple of years.”
Economists at Barclays Plc said in an e-mail that they raised their tracking estimate of the increase in fourth-quarter gross domestic product to 2.2 percent from 2 percent after today’s report.
The Commerce Department, in a statement accompanying the data, said superstorm Sandy had a “minimal” effect on estimates of new residential construction for October. The agency said the number of “non-responses” to its building permits survey was “not significantly higher than normal.”
Estimates for October starts in the Bloomberg survey ranged from 780,000 to 873,000. The prior month was revised to 863,000 from a previously reported 872,000 pace.
Total building permits decreased 2.7 percent to an 866,000 annual rate from 890,000 in September. They were projected to fall to 864,000, according to the survey median. The drop in October permits reflected fewer applications for multifamily construction, while those for one-family units rose to the highest level since July 2008.
Construction of single-family houses eased 0.2 percent to a 594,000 rate from 595,000 the prior month, today’s report showed.
Work on multifamily homes, such as apartment buildings and condominiums, jumped 11.9 percent to an annual rate of 300,000.
Two of four regions had an increase in starts in October, led by a 17 percent surge in the West, today’s report showed. In the Midwest, new construction rose 8.9 percent. Starts dropped 6.5 percent in the Northeast and 2.5 percent in the South.
Sandy made landfall on Oct. 29, indicating a bigger impact is more likely to be in the November data, according to UBS economists. In many cases, the rebuilding of damaged homes may be extensive enough to constitute a new start, and construction may rise in later months as the region recovers, they said.
The share of the affected area in the Northeast of all housing activity is small by comparison, with an estimated 60,000 permits issued in 2011, or less than 10 percent of the U.S. total, they estimated.
The National Association of Home Builders/Wells Fargo index of builder confidence climbed in November to a six-year high of 46, the Washington-based group said yesterday. The group’s gauge of current single-family home sales advanced to the highest level since May 2006 as it jumped by the most since September 2002.
Purchases of previously-owned houses rose 2.1 percent in October to a 4.79 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg, the National Association of Realtors reported yesterday. Inventories dropped to the lowest level in almost a decade.
Toll Brothers Inc. (TOL), a Horsham, Pennsylvania-based luxury homebuilder, is among companies saying the market probably will keep improving.
“We’re in a strong phase of the recovery,” Martin Connor, chief financial officer, said during a conference presentation on Nov. 15. “It’s a function of five years of pent-up demand being released,” and “affordability and rising prices is also spurring people to buy.”
Low borrowing costs and cheaper properties indicate home buying is coming within reach of more Americans. The average rate on a 30-year fixed mortgage dropped to 3.34 percent in the week ended Nov. 15, the lowest in records dating to 1971, according to McLean, Virginia-based Freddie Mac.
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