Tags: housing starts | homes | building | economy

Housing Starts Increase 4.4 Percent to Cap Best Year Since 2007

Wednesday, 21 January 2015 08:56 AM

New residential construction in the U.S. rose more than forecast in December, capping the best year since 2007 and signaling the industry will probably keep expanding this year.

Housing starts increased 4.4 percent to a 1.09 annual rate, following the prior month’s 1.04 million pace that was higher than previously estimated, a Commerce Department report showed Wednesday in Washington. The median forecast of 82 economists surveyed by Bloomberg was 1.04 million. The advance was driven by single-family projects, which climbed to an almost seven-year high.

An improving labor market, mortgage costs close to multi- year lows and rising consumer confidence will probably sustain demand for residential real-estate. Faster wage gains and easier credit would help spur the housing recovery, benefiting sales and profits at builders such as Lennar Corp.

“The outlook for the housing market looks pretty good,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. BMO was among the best forecasters of U.S. housing starts in the past two years, according to data compiled by Bloomberg. “We’ll see a continued upward trend in homebuilding activity.”

Estimates in the Bloomberg survey of economists ranged from 950,000 to 1.1 million. The prior month’s reading was previously reported as a 1.03 million pace.

Permits, a proxy for future construction, declined 1.9 percent in December to a 1.03 million pace. It was depressed by a setback in multifamily projects, which are often volatile from month to month. Applications for single-family homes increased to a seven-year high.

Annual Total

Builders began work on 1.01 million houses in 2014, the most since 2007. The boom peaked at a three-decade high of 2.07 million in 2005, before plunging to a record-low 554,000 in 2009.

Construction of single-family homes climbed 7.2 percent to a 728,000 rate, the most since March 2008, from 679,000 the previous month.

Work on multi-family homes, such as townhouses and apartment buildings, decreased 0.8 percent to an annual rate of 361,000.

Three of four regions had an increase, with only the Midwest falling, the report showed.

Sentiment in the industry is hovering close to a nine-year high. While the National Association of Home Builders/Wells Fargo builder sentiment gauge fell to 57 in January from 58 the prior month, readings greater than 50 mean more respondents report market conditions are good, according to figures from the Washington-based group on Tuesday.

Buyer Pool

Companies are vying to attract a smaller pool of buyers. Lennar Corp., a Miami-based builder, expects the industry will keep expanding.

“While a number of macroeconomic factors have contributed to ongoing choppiness in the recovery, with more pressure on sales prices and gross margins, we remain optimistic about the continuation of the recovery,” Chief Executive Officer Stuart Miller said in an earnings statement on Jan. 15.

Even so, Lennar reported on the same day that profit margins are being hurt by a reduced ability to raise prices. Tight credit, especially for first-time homebuyers, is curbing demand.

“Across the board, we’re seeing intensified competition as builders go out and chase volume,” Miller said on an earnings conference call.

Job Market

An improving labor market will help lift home sales and underpin building activity. About 3 million more Americans found work in 2014, the most in 15 years, Labor Department figures showed. Payrolls climbed by 252,000 workers in December after a 353,000 gain the previous month, and the jobless rate fell to 5.6 percent, the lowest level since 2008.

Advancing confidence also will help. The University of Michigan preliminary consumer sentiment index rose this month to the highest level since January 2004.

Borrowing costs have retreated in the past month. The average 30-year, fixed-rate mortgage was 3.66 percent in the week ended Jan. 15, the lowest since May 2013, according to data from Freddie Mac in McLean, Virginia.

The outlook for economic growth is encouraging companies such as Wells Fargo & Co., the largest U.S. home lender.

“There have been many signs of strength in the U.S. economy,” Chief Executive Officer John Stumpf said on a Jan. 14 earnings call. “I don’t think this is a breakout, but I think we’re on our front foot.”

Easier Credit

More widespread access to credit would help attract a larger group of potential homebuyers. Older Americans who have had decades to build wealth and credit histories are helping to prop up demand for new dwellings while younger people put off homeownership.

That’s among reasons the industry has been slow to regain momentum. Annual starts have totaled less than 1 million since 2007, according to Commerce Department data. They reached 2.07 million in 2005 at the peak of the housing boom, a three-decade high.

“Single-family residential real estate sales and construction were largely flat on balance,” the Federal Reserve said in its Beige Book, based on reports from its 12 districts gathered on or before Jan. 5. Policy makers will meet Jan. 27-28 as they consider when to raise interest rates for the first time since 2006.

Residential investment made a small contribution to economic growth in the second and third quarters of 2014 after being a drag in the first three months.

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New residential construction in the U.S. rose more than forecast in December, capping the best year since 2007 and signaling the industry will probably keep expanding this year.
housing starts, homes, building, economy
Wednesday, 21 January 2015 08:56 AM
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