New U.S. home construction rose in February and building permits climbed to the highest level in almost five years, adding to signs of progress in the housing market that’s helping boost the economy.
Builders broke ground on 917,000 homes at an annual rate, up 0.8% from a revised 910,000 pace in January that was higher than initially estimated, the Commerce Department reported today in Washington. Building permits, a proxy for future construction, advanced 4.6% to 946,000, the strongest since June 2008.
Confidence is being restored to the housing market as property values stabilize, the employment outlook brightens and mortgage rates hover around record lows. An easing of bank lending conditions would help bring home ownership within reach of more Americans and stoke bigger gains in home construction.
“Housing continues to be a bright spot for the economy, and this is a good report,” said Anika Khan, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a subsidiary of the largest U.S. mortgage lender. “Permits definitely showed a big jump. As long as that is outpacing starts, we’ll likely see another positive month next month.”
Stock-index futures held gains after the figures, with the contract on the Standard & Poor’s 500 Index expiring in June climbing 0.2% to 1,549.8 at 8:46 a.m. in New York.
The median estimate of 81 economists surveyed by Bloomberg called for 915,000 starts. Forecasts ranged from 872,000 to 1 million. The prior month’s figure was revised from a previously reported 890,000 pace.
Applications for building permits increased last month from a 904,000 annual rate in January and compared with a 925,000 median forecast. A higher level of permits compared with starts may be a sign that home construction will pick up.
Single-family building permits rose 2.7% in February to a 600,000 annual rate.
Construction of one-family properties climbed 0.5% to a 618,000 rate, the highest since June 2008, from 615,000 the prior month.
Work on multifamily residences such as apartment buildings rose 1.4% to an annual rate of 299,000.
Two of four regions showed gains in February starts, led by a 37.5% jump in the Midwest. New construction rose 18.4% in the Northeast. Starts decreased 7.2% in the West and 5.7% in the South. The drop in the South reflected fewer starts of multifamily units.
Construction companies began work on 780,600 homes in 2012, a 28.2% increase from 2011 and the third straight annual gain. Even with the yearly improvement, housing starts remain short of the 2.07 million in 2005, a three-decade high reached at the peak of the boom.
As builders enter the spring selling season, the Federal Reserve may be set to extend it record monetary policy stimulus that has helped keep mortgage costs low and allowed for a rebound in housing, the industry that was at the center of the financial crisis.
Fed officials, who begin a two-day meeting today, have said they will keep their benchmark lending rate near zero as long as unemployment remains above 6.5% and inflation is projected to be no more than 2.5%. They also said during a January meeting they would keep buying $40 billion per month in mortgage bonds and $45 billion in Treasuries.
Housing is “a sector with huge upside potential for GDP and job creation,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “The upside from housing is probably the only thing that’s going to provide tailwinds strong enough to realize the substantial improvement to the labor market that the Fed is hoping for.”
For those who qualify for home loans, cheaper borrowing costs are attracting buyers. The average rate on a 30-year, fixed-rate purchase loan was 3.63% last week, compared with 3.92% a year ago, according to McLean, Virginia- based Freddie Mac. The 30-year rate reached a record-low 3.31% in November.
Limited inventories and resilient sales are driving orders at builders such as PulteGroup Inc. and Lennar Corp. At the same time, lenders have imposed stricter standards on mortgages, an artifact of the subprime collapse that pushed the U.S. economy into its last recession, said Ara Hovnanian, chairman and chief executive officer of builder Hovnanian Enterprises Inc. in Red Bank, New Jersey.
“On the whole, we’re still seeing definitely stricter guidelines,” Hovnanian said on a March 6 earnings call. “Eventually, the pendulum, which has swung to the overcorrection mode in terms of difficult qualification because of what happened with subprime, that pendulum will come back to the middle and that should add a further boost to the housing recovery a little later in the cycle.”
Residential construction has added to economic growth since the second quarter of 2011, gains that filter to other parts of the economy as well, from appliance makers such as Whirlpool Corp. to retailers such as Lowe’s Cos.
Yesterday, a report showed that builder sentiment paused in March. The National Association of Home Builders/Wells Fargo index of confidence dropped by 2 points to 44. Readings below 50 mean more respondents said conditions were poor.
The group’s gauges of the sales outlook and customer traffic improved, according to the report, while an index of present single-family home sales fell to a five-month low.