Housing Starts in U.S. Climb to an Almost Eight-Year High

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One Chart Shows Why Housing Is Back

New-home construction in the U.S. climbed in July to the highest level in almost eight years, indicating the industry will pick up in the second half of the year.

Residential starts rose 0.2 percent to a 1.21 million annualized rate, the most since October 2007, from a 1.2 million pace in the prior month that was higher than previously estimated, a Commerce Department report showed Tuesday in Washington. The median forecast of 77 economists surveyed by Bloomberg was 1.18 million. A drop in permits, a proxy for future construction, signals additional gains will take time to develop.

Rising employment and historically low mortgage rates are enticing buyers, while increasing prices induced by a lack of homes on the market is an incentive to start new developments. Data showing builder sentiment at a decade high in August underscores the view that the housing rebound will stay on track even as the Federal Reserve is poised to boost borrowing costs.

“There’s enough demand and there’s a little catch-up going on here in terms of housing construction,” said Eric Green, head of U.S. economic research at TD Securities in New York, who projected a 1.2 million pace. “When we’re adding homes like this, it has a significant multiplier effect on the economy, in housing-related retail sales, jobs, consumption. We are exactly where we want to be in housing.”

Economists estimates in the Bloomberg survey ranged from 951,000 to 1.28 million. The June figure was previously reported as a 1.17 million pace.

Permits See-Saw

Permits decreased to a 1.12 million annualized rate. The 16.3 percent drop was the biggest since July 2008. They were projected to decrease to a 1.23 million rate after 1.34 million the prior month, according to the survey median.

Authorizations have been see-sawing because of changes in legislation in the Northeast, where permits plunged by 60 percent last month. Still all four regions of the country saw declines in July.

The increase in starts last month was led by a 12.8 percent gain in construction of single-family houses, taking them to a 782,000 rate, the most since December 2007.

Work on multifamily homes, such as condominiums and apartment buildings, fell 17 percent to an annual rate of 424,000. Data on these projects, which have led housing starts in recent years, can be volatile.

Two of four regions showed increases in starts last month, led by a 20 percent gain in the Midwest, the report showed.

Gaining Confidence

Homebuilder confidence climbed in August to the highest level since November 2005, figures showed on Monday. The National Association of Home Builders/Wells Fargo sentiment index rose to 61 from 60 the prior two months. Readings greater than 50 mean more respondents report good market conditions. Measures of current sales and buyer traffic climbed.

The labor market remains a mainstay for the housing rebound. Payrolls grew in July by 215,000 workers following a 231,000 gain in the prior month, and the jobless rate held at a seven-year low of 5.3 percent.

In the longer term, housing demand may also get help as young adults, who are delaying home ownership, begin to purchase entry-level properties.

Prospective buyers continue to face relatively low borrowing costs. The average 30-year, fixed-rate mortgage was 3.94 percent in the week ended Aug. 13, below last year’s high of 4.53 percent reached in early January 2014, according to data from Freddie Mac in McLean, Virginia.

Fed Outlook

Fed policy makers, who last raised the benchmark rate in 2006, have held it close to zero since 2008 as they tried to stimulate economic growth. Seventy-seven percent of forecasters in a Bloomberg survey taken Aug. 7-12 said the central bank will raise its main policy rate next month.

Residential investment made a 0.2 percentage-point contribution to economic growth in the second quarter, when the economy grew at a 2.3 percent annualized rate.

D.R. Horton Inc., the largest U.S. homebuilder by revenue, in July reported fiscal third-quarter earnings that beat analysts’ estimates as the company sold more properties at higher values.