Construction on new homes rose in October, beating analysts’ expectations and signaling a continued recovery in the housing market.
Housing starts increased by 3.6% last month to a rate of 894,000, according to numbers released by the U.S. Department of Commerce. This is the highest number since July 2008, and it exceeds predictions that building starts would fall to 840,000 in October, according to an analysis by Andrew Wilkinson, chief economic strategist at Miller Tabak & Co.
"The recent back-to-back string of three monthly increases in the level of starts is the first such event since August 2009," he says. "While on the one hand the monthly data clearly displays high volatility, the recent three monthly gains come at a time when starts have reached a four-year high."
Wilkinson points out that the recovery is still relatively slow, but says that it is still encouraging for the potential boost it could give to construction jobs. "While sustainability has yet to be proven, we find this development encouraging on account of what it tells us about employment prospects," he says. "This side of the coin is more important to policymakers at the Fed and is seen as a positive result only after policy adjustments gain traction."
Most of the increase came in the multi-unit sector rather than in single-unit homes, as has been the trend. The numbers were strongest in the West, which saw gains of 34,000 starts; overall new construction also increased in the Midwest. The Northeast and the South saw declines of 5,000 units and 11,000 units, respectively, largely owing to drops in single-family construction.
The number of housing permits, a leading indicator of future housing starts, dropped to 866,000, representing a decrease of 2.7%. Still, permit numbers have been generally strong for the past few months and have increased nearly 30% over October 2011 levels.
“Though coming off a low base, the housing sector is definitely picking up momentum which is good news for homeowners, builders and construction workers,” the Wall Street Journal Market Data Center reported. “There's little initial reaction to today's report which however, like yesterday's strong results for existing home sales and the housing market index, should support the stock market through the session.”
The Commerce Department’s numbers are just the latest bright spot in a string of good news for the sector: On Monday, the National Association of Home Builders/Wells Fargo reported that homebuilder confidence in the single-family housing market was up five points in November. The same day, the National Association of Realtors released numbers showing a 2.1% rise in home sales in October.