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Builders Probably Began Work on Most U.S. Homes in Four Years

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Housing Starts in U.S. Surged in September to Four-Year High
A laborer works on new home construction at the Chateau at Fallon Crossing development by Standard Pacific Homes in Dublin, California. Photographer: David Paul Morris/Bloomberg

Oct. 17 (Bloomberg) -- New-home construction in the U.S. probably rose in September to the highest level in four years, a sign the industry is in the initial stages of a recovery, economists said before a report today.

Builders broke ground on 770,000 houses at an annual rate, up from 750,000 starts in August and the most since October 2008, according to the median estimate of 80 economists surveyed by Bloomberg. Permits for new projects also probably increased.

A pickup in sales stoked by record-low mortgage rates and population growth combined with dwindling supply indicates construction can continue strengthening, contributing to economic growth. At the same time, housing starts are running at a quarter of their pre-recession peak, limiting how much the industry can boost the rate of expansion.

“Housing activity is definitely moving upward, but it has a long way to go” said David Berson, the chief economist at Nationwide Mutual Insurance Co. in Columbus, Ohio. “Household formations have picked up over the last year. As we get more households, builders are responding modestly by increasing construction.”

The Commerce Department will release the starts data at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 735,000 to 800,000.

Building permits, a proxy for future construction, may have risen 1.1 percent to an 810,000 annual rate in September, according to the survey median.

Sales Improving

A harbinger of progress for homebuilders, demand for new homes has hovered at a two-year high. Homes sold at a 373,000 annual pace in August and at a 374,000 rate in July, the best two months since the March-April 2010, according to Commerce Department figures.

That demand may, in part, be driven by a growing population. The number of households in the U.S. grew 2 percent in 2011, the biggest gain in 10 years, to 119.9 million, according to the most recent Census Bureau data.

Housing starts plummeted during the recession, with the three years between 2009-2011 marking the worst period for homebuilding in records going back to 1959. Starts reached a pre-recession peak of 2.1 million in 2005, the most in more than 30 years, before slumping to a low of 554,000 in 2009.

As a result, the supply of new homes available for purchase has diminished. There were enough properties on the market in August to last 4.5 months at the current sales pace, matching July as the lowest level in almost seven years, Commerce Department figures show.

Mortgage Rates

Lower borrowing costs are helping bolster home demand as well. The average rate on a 30-year fixed mortgage was 3.39 percent in the week ended Oct. 11, near a record-low of 3.36 reported Oct. 4, according to data from Freddie Mac that dates back to 1971.

Lending could be further stimulated 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” in September as he announced the third round of quantitative easing, meant to boost growth and reduce unemployment.

The brighter building environment has made construction companies less pessimistic. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006 and the sixth-straight gain, figures showed yesterday. Still, readings below 50 mean more respondents said conditions were poor.

‘Pent-Up Demand’

“There is going to be a continued housing recovery over the next few years,” said Larry Seay, chief financial officer at Meritage Homes Corp. in Scottsdale, Arizona, during an investor conference on Oct. 11. “Pent-up demand that has built up from people deferring household formation is going to help buoy the recovery. High affordability not only with house prices being very low, but also interest rates being as low as they’ve been in decades, and all that translating into an improved buyer confidence.”

Investors have also cheered the news. The Standard & Poor’s Supercomposite Homebuilder Index has increased 80.6 percent this year through yesterday, outpacing a 15.7 percent gain for the broader S&P 500 Index.

Weak employment growth, nonetheless, will probably prevent a rapid acceleration in the housing market. There were 12.1 million Americans unemployed in September, meaning incomes will be slow to grow.

                        Bloomberg Survey

================================================================
                           Housing  Housing Building Building
                            Starts   Starts  Permits  Permits
                            ,000’s     MOM%   ,000’s     MOM%
================================================================

Date of Release              10/17    10/17    10/17    10/17
Observation Period           Sept.    Sept.    Sept.    Sept.
----------------------------------------------------------------
Median                         770     2.7%      810     1.1%
Average                        769     2.6%      811     1.2%
High Forecast                  800     6.7%      850     6.1%
Low Forecast                   735    -2.0%      785    -2.0%
Number of Participants          80       80       57       57
Previous                       750     2.3%      801    -1.2%
----------------------------------------------------------------
4CAST                          780     4.0%      800    -0.1%
ABN Amro                       769     2.5%     ---
Action Economics               775     3.3%      795    -0.8%
Ameriprise Financial           765     2.0%      815     1.8%
Banca Aletti                   765     2.0%      820     2.4%
Bank of the West               770     2.7%      795    -0.8%
Bantleon Bank AG               775     3.3%      820     2.4%
Barclays                       775     3.3%     ---
BBVA                           780     4.0%      815     1.8%
BMO Capital Markets            770     2.7%      800    -0.1%
BNP Paribas                    780     4.0%     ---
BofA Merrill Lynch             775     3.3%      810     1.1%
Briefing.com                   765     2.0%      815     1.8%
Capital Economics              765     2.0%     ---
CIBC World Markets             768     2.4%      792    -1.1%
Citi                           765     2.0%      815     1.8%
ClearView Economics            770     2.7%      810     1.1%
Comerica                       770     2.7%     ---
Commerzbank AG                 765     2.0%      800    -0.1%
Credit Agricole CIB            745    -0.7%      805     0.5%
Credit Suisse                  760     1.3%      805     0.5%
Daiwa Securities America       760     1.3%     ---
Danske Bank                    785     4.7%      805     0.5%
DekaBank                       770     2.7%      790    -1.4%
Desjardins Group               790     5.3%      790    -1.4%
Deutsche Bank Securities       775     3.3%      810     1.1%
Deutsche Postbank AG           780     4.0%     ---
DZ Bank                        760     1.3%      808     0.9%
Exane                          775     3.3%     ---
First Trust Advisors           760     1.3%     ---
FTN Financial                  765     2.0%      815     1.8%
Goldman, Sachs & Co.           765     2.0%     ---
Helaba                         800     6.7%      800    -0.1%
High Frequency Economics       780     4.0%      805     0.5%
HSBC Markets                   770     2.7%      815     1.8%
Hugh Johnson Advisors          775     3.3%     ---
IDEAglobal                     760     1.3%      810     1.1%
IHS Global Insight             781     4.1%      808     0.9%
ING Financial Markets          771     2.8%      810     1.1%
Insight Economics              760     1.3%     ---
Intesa Sanpaulo                770     2.7%      805     0.5%
J.P. Morgan Chase              750     0.0%      820     2.4%
Janney Montgomery Scott        753     0.4%      809     1.0%
Jefferies & Co.                770     2.7%      815     1.8%
John Hancock Financial         759     1.2%      804     0.4%
Landesbank Berlin              735    -2.0%      810     1.1%
Landesbank BW                  770     2.7%      820     2.4%
Lloyds Bank                    765     2.0%      785    -2.0%
Maria Fiorini Ramirez          770     2.7%     ---
Market Securities              775     3.3%     ---
MET Capital Advisors           749    -0.1%     ---
Moody’s Analytics              765     2.0%      790    -1.4%
National Bank Financial        775     3.3%      815     1.8%
Natixis                        770     2.7%     ---
Nomura Securities              747    -0.4%      838     4.6%
Nord/LB                        765     2.0%      810     1.1%
OSK Group/DMG                  766     2.1%     ---
Oxford Economics               751     0.1%      802     0.1%
Pierpont Securities            780     4.0%     ---
PineBridge Investments         746    -0.5%     ---
PNC Bank                       775     3.3%      820     2.4%
Raiffeisenbank International   800     6.7%      850     6.1%
Raymond James                  775     3.3%      820     2.4%
RBC Capital Markets            760     1.3%     ---
RBS Securities                 765     2.0%     ---
Regions Financial              770     2.7%     ---
Renaissance Macro Research     765     2.0%      810     1.1%
Scotiabank                     770     2.7%      820     2.4%
SMBC Nikko Securities          775     3.3%      810     1.1%
Societe Generale               790     5.3%      850     6.1%
Standard Chartered             765     2.0%      810     1.1%
Stone & McCarthy               765     2.0%      825     3.0%
TD Securities                  785     4.7%      800    -0.1%
UBS                            760     1.3%      800    -0.1%
UniCredit Research             775     3.3%      800    -0.1%
Union Investment               790     5.3%      820     2.4%
University of Maryland         770     2.7%      820     2.4%
Wells Fargo & Co.              778     3.7%     ---
Westpac Banking Co.            765     2.0%      841     5.0%
Wrightson ICAP                 770     2.7%      815     1.8%
================================================================

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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