Work began in January on the most U.S. single-family houses in over four years and permits for future projects climbed, setting the stage for construction to keep adding to economic growth in 2013.
Builders broke ground on 613,000 houses at an annualized rate last month, the most since July 2008 and up 0.8 percent from December, Commerce Department figures showed today in Washington. Total housing starts dropped to an 890,000 rate, lower than forecast and restrained by a slump in construction of multifamily units, which is often volatile.
With builders such as PulteGroup Inc. and Lennar Corp. reporting rising orders, the industry that was at the center of the financial crisis is poised to boost the economy after emerging as a bright spot in 2012. More hiring and easier access to credit are needed to help complement historically low mortgage rates and sustain the rebound.
“We ended 2012 on a solid note and we do have some momentum heading into this year,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who projected total starts would drop to an 895,000 pace. “The fact that single-family starts are up is very encouraging. It is more important to the economy in terms of employment and growth.”
Wholesale prices in the U.S. rose in January for the first time in four months, reflecting higher costs for food and pharmaceuticals, another report showed. The producer-price index climbed 0.2 percent after a 0.3 percent drop in December, the Labor Department reported.
The Standard & Poor’s 500 Index fell after reaching a five-year high yesterday as minutes from the Federal Reserve’s last meeting showed a debate over the risks and benefits of further monetary stimulus. The S&P 500 dropped 1.2 percent to 1,511.95 at the close in New York. The S&P Supercomposite Homebuilding Index tumbled 6.7 percent, the most since June, after Toll Brothers Inc., the largest U.S. luxury-home builder, reported earnings and revenue that trailed analysts’ estimates.
Minutes of the Federal Open Market Committee’s Jan. 29-30 meeting released today showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a labor market burdened with 7.9 percent unemployment. Some said an earlier end to purchases might be needed, and others warned against a premature withdrawal of stimulus.
Overseas today, Japan said its trade deficit swelled to a record 1.63 trillion yen ($17.4 billion) in January as energy imports climbed and the yen weakened.
The median estimate of 85 economists surveyed by Bloomberg projected total U.S. housing starts would drop to a 920,000 annual rate. Estimates ranged from 870,000 to 1 million. The prior month’s figure was revised to 973,000, up from a previously reported 954,000 pace and the most since June 2008.
Permits increased to a 925,000 annual rate, the highest since June 2008. They were projected to climb to a 920,000 annual rate, according to the survey median. Applications that are higher than the level of starts signal residential construction may strengthen.
“Permits look very solid, and that is a great sign,” said PNC’s Faucher.
Company results indicate the improvement in residential real estate will continue. PulteGroup, Lennar and D.R. Horton Inc., the top three U.S. homebuilders by market value, said orders rose in the most recently reported quarter.
“The combination of incredibly low mortgage rates, continued increases in rental rates and especially rising home prices, and very low -- and likely to stay low -- inventory levels for housing lead us to believe that 2013 will be a better year for U.S. housing than 2012,” Richard Dugas, chief executive officer of Bloomfield Hills, Michigan-based PulteGroup, said on a Jan. 31 earnings call.
Results from Horsham, Pennsylvania-based Toll Brothers raised concern industry expectations were running ahead of results. The builder reported net income in the quarter ended Jan. 31 was $4.4 million, or 3 cents a share. The average of 16 estimates in a Bloomberg survey was for earnings of 10 cents a share.
Toll’s biggest market is from Boston to Washington, where new-home sales have lagged behind growth nationwide amid rising foreclosures in the area and threats of federal budget cuts.
Work on multifamily homes such as apartment buildings plunged 24.1 percent in January to an annual rate of 277,000 after jumping 34.7 percent the prior month to a four-year-high 365,000 rate, today’s Commerce Department report showed.
Here, the news from permits was also encouraging. Applications for future multifamily work increased 1.5 percent last month to a 341,000 rate, the most since July 2008.
The drop in total starts reflected declines in two of four regions. Construction dropped 50 percent in the Midwest and 35.3 percent in the Northeast. It rose 16.7 percent in the West and 4.1 percent in the South.
The regional breakdown, with slowdowns in the Midwest and Northeast, indicates weather may have played a role in the swing from December to January. The last month of 2012 was the second-warmest December in U.S. records going back to 1958, according to the National Oceanic and Atmospheric Administration, which may have boosted homebuilding in those regions that are most sensitive to climate.
Residential construction contributed to gross domestic product in 2012 for the first time in seven years, accounting for 0.27 percentage point of the 2.2 percent advance in growth.
The Fed’s efforts to keep mortgage costs low have helped bring about a turnaround in housing, and may keep boosting demand.
Near record-low mortgage costs have made it cheaper to buy a home for those who qualify for credit. The average fixed rate on a 30-year loan held at 3.53 percent in the week ended Feb. 14, down from 3.87 percent a year ago, figures from McLean, Virginia-based Freddie Mac showed.
For all of last year, builders began work on 779,900 homes, a 28.1 percent increase from 2011. Even with the yearly improvement, housing starts remain short of the 2.07 million in 2005 at the peak of the boom, which was a three-decade high.
Sentiment in the industry leveled off this month from a more than six-year high, figures showed yesterday. The National Association of Home Builders/Wells Fargo index of builder confidence fell to 46 from the prior month’s 47 that matched the highest reading since April 2006.
Firming prices are also helping to attract buyers who were reluctant to make purchases when property values were declining. The S&P/Case-Shiller index of house prices in 20 cities rose 5.5 percent in the 12 months to November, the biggest year-over-year gain since August 2006, the most recently available data showed.