Builders started work on fewer single-family homes in July, marking a pause in the residential construction rebound that’s helping to propel the U.S. economy.
Work began on 2.2 percent fewer individual homes last month, taking them to a 591,000 annualized rate, the least since November, Commerce Department data showed today in Washington. Total housing starts climbed to an 896,000 pace, propelled by a rebound in the multifamily category, which can be volatile.
The slowdown contrasts with a surge in builder confidence, indicating firms may be limiting supply amid a shortage of lots and materials as they try to boost prices and revenue. Another report today showing consumer sentiment slumped this month signals rising interest rates may be shaking American households, making a pickup in hiring even more crucial in boosting the outlook for spending.
“Things are still far better than they were a year ago, but it feels like progress has stalled out for a little while,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford Connecticut, who projected starts would rise to a 900,000 pace. Builders will eventually “expand operations, they’ll hire workers and get more aggressive. At the moment they’re happy to keep the market tightly supplied because that allows them to raise prices.”
Building permits for single-family projects climbed to a 613,000 pace in July, the report also showed, exceeding the number of starts and signaling a possible pickup in construction in coming months.
Consumers were less optimistic this month as Americans faced rising interest rates, figures from Thomson Reuters/University of Michigan showed. The group’s preliminary sentiment index for August fell to 80 from 85.1 in July, which was the highest since July 2007.
The median projection of 68 economists surveyed by Bloomberg called for little change at 85.2. The decline this month was the biggest since December.
The index averaged 89 in the five years leading up to the last recession that began in December 2007, and 64.2 during the 18-month slump that ended in June 2009.
“I suspect the marked back-up in mortgage rates through the early summer did play a role in damping consumer sentiment,” said Doug Porter, chief economist at BMO Capital Markets in Toronto. “The fading confidence I don’t think is a big deal, but it suggests we can’t really count on the consumer to suddenly kick it into a higher gear.”
There was a jump in the number of those surveyed projecting borrowing costs will rise over the next year, according to economists such as Daniel Silver at JPMorgan Chase & Co. in New York, who have access to the data. The index on home-buying conditions dropped 8 points this month to the lowest level since February, Silver said in a research note.
The median estimate of 82 economists surveyed by Bloomberg projected housing starts would rise to a 900,000 annualized rate. Estimates (NHSPSTOT) ranged from 815,000 to 1.05 million. June was revised to 846,000 from a previously reported 836,000.
Building permits climbed 2.7 percent in July to a 943,000 annualized rate, also paced by a jump in multifamily. They were projected to rise to 945,000, after a previously reported reading of 918,000.
Work on multifamily homes, such as apartment buildings, jumped 26 percent to a 305,000 rate after falling 24.8 percent in June.
Three of four regions registered increases in total housing starts last month, led by a 40.2 percent jump in the Northeast, according to the report. Construction dropped 7 percent in the South.
On a year-to-year basis, housing starts were up 20.9 percent in July.
Gains in the housing industry have extended beyond builders to boost lenders and suppliers of construction materials as well. Even with the improvements, starts are short of the 2.1 million in 2005 at the height of the boom, which was a three-decade high.
Around the peak, housing made up 21 percent of Martin Marietta Materials Inc. (MLM)’s business, contrasting with 8 percent last year, Chief Executive Officer Howard Nye said at the Jefferies Global Industrials Conference on August 13. The company, which provides crushed stone, sand and gravel for construction, expects starts to increase to an annual pace of 1.5 million in “a couple of years.”
“So as we climb our way back to 1.5 million, as we all celebrate that and feel like that’ll be good for our business, and it will, that’s not necessarily putting a lot of gas in that tank beyond something that we should be very much accustomed to over time,” Nye said.
The National Association of Home Builders/Wells Fargo confidence index rose in August to the highest level since 2005 as demand for new homes supports the market, a report yesterday showed.
Employers added the fewest workers to payrolls in four months in July even as the U.S. jobless rate fell, a sign of uneven labor-market gains in the world’s biggest economy, Labor Department data showed earlier this month.
Builders have been hesitant to add employees since the recession, which limits the pace at which the industry can grow, Pierpont’s Stanley said. Payrolls at construction companies have climbed by 325,000 workers since the start of 2011, compared with the 2.2 million employees they cut in the four years ended 2010, according to Labor Department data.
Even so, homebuilders will probably benefit from a constrained supply of existing homes and borrowing costs that are historically low even after a run-up that began in May. The average rate on a 30-year fixed mortgage was at 4.40 percent in the week ended Aug. 15, compared with a record-low 3.31 percent reached in November, according to data from Freddie Mac.
Sustained improvement in the U.S. labor market and rising home prices may help prospective buyers feel more confident, extending gains through the second half of the year. Companies such as Tri Pointe Homes Inc. (TPH), which designs and constructs single-family homes throughout California and Colorado, are already seeing the difference.
“Jobs have proven to be the most fundamental driver along with household formations and consumer confidence,” Douglas Bauer, chief executive officer, said in an Aug. 13 conference call to discuss second-quarter earnings, which rose more than the average analyst estimate. “Our company has continued to experience strong traffic in buyer demand in all product segments and markets as rates have moved modestly higher.”
Another report today showed the productivity of U.S. workers rose in the second quarter, rebounding from the biggest back-to-back declines since 1993. The measure of employee output per hour increased at a 0.9 percent annualized rate after 1.7 percent decreases in each of the prior two quarters, according to Labor Department data.
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