Housing Starts in U.S. Surge on Multifamily Unit Demand
New-home construction in the U.S. climbed in March to the highest level in almost five years, propelled by a surge in multifamily building that will support economic growth.
Starts (NHSPSTOT) climbed 7 percent to a 1.04 million annual rate, the most since June 2008, from a revised 968,000 pace in February that was larger than previously reported, according to Commerce Department figures issued today in Washington. Other reports showed consumer prices unexpectedly dropped last month and factory production cooled.
Near record-low mortgage rates and pent-up demand for rental units will keep residential construction a pillar of the expansion as concern grows that mandated cuts in planned federal spending will slow the world’s largest economy. A lack of inflation also means the Federal Reserve can keep pumping money into financial markets to help stem any slackening.
“There’s still a lot of room for improvement in housing, both for activity and for prices,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, who had the highest starts forecast in the Bloomberg survey. “This is critical for the U.S. economy.”
Stocks advanced, with the benchmark Standard & Poor’s 500 Index rebounding from its biggest drop since November, as the construction data and corporate earnings topped estimates. The S&P 500 added 1.4 percent, the most since Jan. 2, to 1,574.57 at the close in New York. Gold rebounded from the biggest drop in 33 years as BlackRock Inc. said the selling didn’t reflect fundamentals. Gold futures for June delivery rose 1.9 percent to close at $1,387.40 an ounce on the Comex in New York.
Other reports today showed the global economy was struggling to regain momentum. German investor confidence declined more than economists forecast in April, and South Korea announced a supplementary budget to support growth as exporters are pressured by a weaker Japanese currency.
The median estimate of 80 economists surveyed by Bloomberg called for U.S. housing starts to climb to a 930,000 annualized pace. Last month’s results exceeded all estimates, which ranged from 885,000 to 985,000. February’s pace was first reported as 917,000.
Work on multifamily homes, such as apartment buildings, jumped 31 percent in March to an annual rate of 417,000, the most since January 2006. While the month-to-month readings tend to be volatile, this portion of the industry has been benefiting from a rebound in household formations as the economy and job market improve.
Construction of single-family houses fell 4.8 percent in March to a 619,000 rate after the prior month was revised up to an almost five-year high of 650,000. The February reading was previously estimated at 618,000
“Housing continues to be the bright spot,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “There’s still a lot of room to go with new construction activity.”
A decline in building permits may signal last month’s surge will be difficult to repeat. Applications (NHSPATOT) fell 3.9 percent in March to a 902,000 annualized rate, reversing the prior month’s gain. They were projected to rise to 942,000, within a range of 905,000 to 990,000.
Three of four U.S. regions showed a gain in starts last month, led by a 10.9 percent increase in the South.
Builders began work on 780,000 homes in 2012, a 28 percent gain from the prior year and the third straight annual increase. Even with the improvements, starts are short of the 2.1 million in 2005 at the peak of the boom, which was a three-decade high.
“The momentum from the housing rebound during 2012 has remained strong in the early months of 2013,” John Stumpf, chief executive officer at Wells Fargo & Co. (WFC), said on an April 12 earnings call. San Francisco-based Wells Fargo funded one in four U.S. mortgages in 2012. “Our near-term outlook is for steady gains in home sales, building activity, and price appreciation. Housing affordability remains excellent.”
Data from the Labor Department indicated policy makers have little reason to be concerned about inflation. The consumer- price index dropped 0.2 percent in March after a 0.7 percent jump in February, the government also reported today. The core measure, which excludes volatile food and energy costs, rose 0.1 percent, less than forecast.
For the 12 months that ended in March, consumer prices increased 1.5 percent, the smallest gain since July, compared with a 2 percent year-over-year gain reported in February.
“In the eyes of the Fed, the good news on inflation is going to give them plenty of comfort,” said RBS Securities’ Girard. “It’s all the more reason for them to stand pat and continue to provide the accommodation needed to support the economy.”
The Fed’s actions are among reasons housing is prospering. The average rate on a 30-year fixed mortgage fell to 3.43 percent in the week ended April 11 from 3.54 percent in the prior period, according to Freddie Mac. The rate reached a record-low 3.31 percent in November.
A rebound in home construction will aid the expansion. In the past six months, payrolls at construction companies have grown by 169,000 workers, according to Labor Department data. Residential investment bolstered U.S. gross domestic product by 0.27 percentage point in 2012, the first addition since 2005.
“The economy does seem to be strengthening -- particularly the housing market seems to be recovering at this point,” Fed Governor Elizabeth Duke said today at a Washington conference hosted by the American Bankers Association. “House prices are going up” though “a lot of that has to do with a shortage of houses on the market.”
At the same time, credit standards are still restrictive in the mortgage market, Duke said.
“Mortgage lending is a place where credit conditions really have not loosened at all -- they’ve not loosened in the least bit,” she said.
The news on manufacturing wasn’t as good last month. Output (IPMGCHNG) at factories fell 0.1 percent in March after jumping 0.9 percent the prior month, according to figures from the Fed.
Output is slowing as companies try to limit inventories amid concern the expansion will slow after automatic cuts in planned federal spending took effect on March 1. Nonetheless, manufacturers such as rail-car maker Greenbrier Cos. (GBX) project an improvement in the second half of the year, a sign business investment is unlikely to retrench.
“The details look pretty weak, but that came after strength in February,” said James O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, and the second-best industrial production forecaster over the past two years, according to data compiled by Bloomberg. “Manufacturing will certainly continue to grow.”
Lake Oswego, Oregon-based Greenbrier announced first-half results that were ahead of expectations and the company is “looking forward to a solid second half” of the year, Chief Executive Officer William Furman said in an April 4 earnings conference call.
“There is demand out there,” Furman said on the teleconference. “We’re pretty pleased about the quarter’s momentum and the momentum going forward into the third quarter.”
Total industrial production, which includes manufacturing, mining and utilities, climbed 0.4 percent in March as colder- than-normal temperatures drove the biggest gain in electricity and natural-gas use in six years, the Fed’s report also showed.
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