Residential real estate revived?

August 19, 2014 04:49 AM

Housing starts surged in July to the highest level in eight months, underscoring the recent pickup in builder optimism as the U.S. residential real-estate market gains some traction.

Beginning home construction climbed 15.7% to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department said today in Washington. The level exceeded the highest estimate in a Bloomberg survey of economists, whose median projection called for 965,000 starts.

A strengthening job market and cheaper borrowing costs are helping revive residential real-estate after a lull in construction at the start of the year. At the same time, the industry’s recovery has been challenged slow wage growth and tight credit, which have put homeownership out of reach for some Americans.

“Recent news on the housing front has been relatively encouraging,” Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, said in a research note. “‘With affordability remaining high, mortgage rates still low, and labor market activity accelerating, we expect the housing market trajectory to continue gradually improving in the coming months.”

Permits for future projects advanced 8.1% to a 1.05 million pace. The gain reflected the fastest rate of building applications for single-family dwellings since November.

Estimates for annualized starts ranged from 898,000 to 1.03 million after a previously reported 893,000 in June, according to the Bloomberg survey of 75 economists. It was the biggest positive surprise for starts since April 2013. Building permits were projected to advance to a 1 million rate.

Consumer Prices

Another report today showed the cost of living in the U.S. eased in July as energy prices declined. The consumer-price index increased 0.1% last month, the smallest gain since February, according to the Labor Department. Costs excluding fuels and food also rose 0.1% in July.

Stock-index futures maintained gains after the report, with the contract on the Standard & Poor’s 500 Index expiring in September rising 0.2% to 1,972.3 at 8:57 a.m. in New York.

Starts of single-family properties rose 8.3% to a 656,000 rate in July, the fastest this year, the Commerce Department said. Construction of multifamily projects such as condominiums and apartments rose 28.9% to an annual rate of 437,000.

Northeast Jump

Three of four regions showed an increase in groundbreaking last month, led by a 44% jump in the Northeast to the highest level since July 2008. Starts rebounded 29% in the South and climbed 18.6% in the West.

Today’s figures corroborate a report yesterday showing builder confidence rose in August to the highest level in seven months. The National Association of Home Builders/Wells Fargo said its sentiment measure climbed to 55 from 53 in July.

Weather dealt a setback to builders at the beginning of the year as snow blanketed construction sites in parts of the country and bitter cold kept some would-be buyers at home. Homebuilding bounced back in the second quarter, climbing at a 7.5% annualized rate in the second quarter after a 5.3% slump in the first three months of the year, data from the Commerce Department showed on July 30.

More hiring and cheap borrowing costs are helping some Americans take the plunge. The economy added more than 200,000 jobs for a sixth straight month in July, the longest such stretch since 1997, according to Labor Department figures.

Interest Rates

Borrowing costs have declined this year. The average 30- year, fixed-rate mortgage was 4.12% in the week ended Aug. 14, down from 4.53% at the start of January, according to data from Freddie Mac in McLean, Virginia.

While the market recovers, demand is outpacing construction. The U.S. requires between 1.6 million and 1.9 million new units a year just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.

New orders at the Ryland Group Inc. climbed 1.7%, to 2,228 homes, in the three months ended June 30. It was the best quarter in seven years for the Westlake Village, California- based company and President and Chief Executive Officer Larry Nicholson said he is optimistic about the outlook.

“We remain confident about the future of housing,” Nicholson said on a July 31 earnings call. “We see the markets continue to move forward. We have good traffic. We’re making sales. We’re making margin. We’re pretty upbeat for what we see for the rest of the year.”

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