Beginning construction of new U.S. homes increased in May and permits to build single-family houses rose to a five-year high, extending a rebound that is helping shore up the expansion.
Housing starts climbed 6.8%, less than forecast, to a 914,000 annualized rate after a revised 856,000 pace in April, the Commerce Department reported today in Washington. The median estimate of 82 economists surveyed by Bloomberg called for a 950,000 rate. Applications to build one-family homes increased 1.3% to a 622,000 pace, the fastest since May 2008.
Building permits that exceed the level of starts indicate residential construction will keep rising as improving job opportunities and historically low mortgage rates lure buyers. The recovery in residential real estate that’s spurred optimism among builders such as Hovnanian Enterprises Inc. shows how record monetary stimulus from Federal Reserve policy makers, who meet today and tomorrow, is bolstering economic growth.
“We’ll continue to see starts increase through the remainder of this year and into the next,” said Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected 905,000 starts at an annual rate. “Permits are still slowly heading in the right direction.”
Economists’ estimates for starts in a Bloomberg survey ranged from an 875,000 pace to a 1.02 million rate after an initially reported 853,000 in April.
Stock-index futures held gains after the figures, with the contract on the Standard & Poor’s 500 Index expiring in September rising 0.2% to 1,636.1 at 8:49 a.m. in New York.
Another report showed the cost of living in the U.S. rose less than forecast last month. The consumer-price index climbed 0.1% after falling 0.4% in April, the Labor Department said. The median forecast of economists called for a 0.2% gain.
Total building permits decreased 3.1% to a 974,000 million annualized rate in May, reflecting a 10% slump in applications for multifamily dwellings. Economists projected a 975,000 pace, according to the Bloomberg survey median.
Construction of single-family houses rose 0.3% to a 599,000 rate from 597,000 the prior month.
Work on multifamily projects such as apartment buildings increased 21.6% to an annualized rate of 315,000.
Two of four regions had a increase in starts last month, including a 17.8% jump in the South and a 5.7% gain in the West. Starts dropped 13.7% in the Midwest, which may have been due to wetter-than-normal weather in the region.
Last month, precipitation across the contiguous U.S. was 0.47 inches above average, and the wettest May since 1995, according to the National Oceanic and Atmospheric Administration. Most of the northern U.S. had above-average precipitation. Iowa had its wettest May ever.
Builders began work on 780,000 homes in 2012, a 28% increase from the prior year and the third-straight annual advance. Even with the gains, starts remain short of the 2.1 million reached in 2005 at the peak of the boom, which was a three-decade high.
Improving property values and cheaper borrowing costs have encouraged some Americans to buy new homes before mortgage rates head higher. The average rate on a 30-year fixed loan jumped to a 14-month high of almost 4% last week from a four-month low of 3.35% in early May, according to Freddie Mac data.
“I’m quite nervous about how the market is going to digest the higher interest rates,” Ian Shepherdson, an economist at Pantheon Macroeconomics, said before the report. “It’s quite a big spike. That might induce a bit of indigestion.”
Mortgage rates are climbing because of heightened consumer demand for loans, Neil Dutta, an economist at Renaissance Macro Research LLC in New York, said in a note to clients yesterday.
“Interest rates have risen, but they’re still at historic lows,” Robert Niblock, chief executive officer of Lowe’s Cos., the second-largest U.S. home improvement retailer, said yesterday in an interview. The Mooresville, North Carolina-based company’s sales in the second quarter have recovered from March and April when rainy, colder-than-normal weather limited demand, he said.
Builders remain optimistic as well. A measure of builder confidence climbed in June to its highest level since March 2006, a National Association of Home Builders/Wells Fargo index of builder confidence showed yesterday. The gauge rose to 52 from 44 in May, according to the Washington-based group.
“A lot of us are expecting that we need 1.6 million to 1.9 million housing starts to keep up with population growth,” Brad G. O’Connor, chief accounting officer at Red Bank, New Jersey- based builder Hovnanian Enterprises, said in a June 13 presentation. “Housing creation shows that we should still have a fair amount of pent-up demand and an ongoing recovery to the housing market, that we’re just in the beginning of that recovery.”
Recent gains have been enough to encourage those in home construction. The National Association of Home Builders/Wells Fargo index surged to 52 in June from 44 in June, its highest level since March 2006, as builders became more confident about the future, the group reported this week.
Among companies benefiting is Ryland Group Inc., a West Lake Village, California-based homebuilder that reported first- quarter profit for the first time in six years.
“There is no market that is not active today, which is another good sign,” Chief Executive Officer Larry T. Nicholson said in a June 13 presentation. “There’s a huge opportunity for demand that’s sitting on the sidelines that can’t buy a house today, because they have some ding on their credit.”
For those who can get loans, The Fed’s efforts to keep mortgage costs low have helped spur demand. The central bank has been buying assets at an $85 billion monthly pace, including $40 billion in mortgage-backed securities, to bolster growth and reduce the jobless rate.
Chairman Ben S. Bernanke said on May 22 that the central bank could scale back stimulus efforts should the economy show sustained improvement. The Federal Open Market Committee begins a two-day meeting policy today in Washington and will release its new rate decision and outlook on the economy tomorrow afternoon.
The recovery in housing is spreading beyond builders to companies such as furniture and décor retailer Restoration Hardware Holdings Inc.
“We believe everybody probably in the home is being affected by the good news and the rebound of the housing market,” said Gary Friedman, chairman emeritus to the Corte Madera, California-based company, in a June 13 earnings call.