New-home construction in the U.S. climbed in July, reflecting a rebound in multifamily projects that overshadowed a slowdown in single-family properties.
Housing starts climbed 5.9% to an 896,000 annualized rate from a revised 846,000 pace in June that was higher than previously reported, figures from the Commerce Department showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg was for a 900,000 rate. Multifamily construction surged 26%, while work began on 2.2% fewer single-family homes.
Builders may be limiting supply amid a shortage of lots and materials as they try to boost prices and revenue in an industry that has supported growth. Further gains in employment will be needed to help sustain demand and make up for the jump in interest rates that is hurting affordability.
“Things are still far better than they were a year ago, but it feels like progress has stalled out for a little while,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford Connecticut, who projected starts would rise to a 900,000 pace. Builders will eventually “expand operations, they’ll hire workers and get more aggressive. At the moment they’re happy to keep the market tightly supplied because that allows them to raise prices.”
Productivity Climbs
Another report today showed the productivity of U.S. workers rose in the second quarter, rebounding from the biggest back-to-back declines since 1993. The measure of employee output per hour increased at a 0.9% annualized rate after 1.7% decreases in each of the prior two quarters, according to Labor Department data.
Also today, a report from Thomson Reuters/University of Michigan showed consumer confidence unexpectedly dropped in August from a six-year high as Americans faced rising interest rates. The group’s preliminary sentiment index fell to 80 from 85.1 in July, which was the highest since July 2007. The median projection of 68 economists surveyed by Bloomberg called for little change at 85.2. The decline this month was the biggest since December.
Stocks fluctuated between gains and losses after the reports. The Standard & Poor’s 500 Index was up less than 0.1% to 1,662.73 at 10:39 a.m. in New York after suffering its biggest drop in two months yesterday.
Survey Results
Estimates for housing starts in the Bloomberg survey ranged from 815,000 to 1.05 million following a June pace that was first reported as 836,000.
Building permits climbed 2.7% in July to a 943,000 annualized rate, again paced by a jump in multifamily. They were projected to rise to 945,000 within a range of 885,000 to 1 million, after a previously reported reading of 918,000.
Building applications for single-family projects exceeded the number of starts, signaling some scope for a pickup in construction in coming months.
Construction of single-family houses decreased to a 591,000 rate, the fewest since November, today’s report showed. Work on multifamily homes, such as apartment buildings, climbed to a 305,000 rate. Work on these projects is often volatile, with last month’s surge following a 24.8% plunge in June.
Three of four regions had an increase in starts last month, led by a 40.2% jump in the Northeast, according to the report. Construction dropped 7% in the South.
On a year-to-year basis, total housing starts were up 20.9% in July.
Housing Rebound
Gains in the housing industry have extended beyond builders to boost lenders and suppliers of construction materials as well. Even with the improvements, starts are short of the 2.1 million on 2005 at the height of the boom, which was a three- decade high.
Around the peak, housing made up 21% of Martin Marietta Materials Inc.’s business, contrasting with the 8% it composed last year, Chief Executive Officer Howard Nye said at the Jefferies Global Industrials Conference on August 13. The company, which provides crushed stone, sand and gravel for construction, expects starts to increase to an annual pace of 1.5 million in “a couple of years.”
“So as we climb our way back to 1.5 million, as we all celebrate that and feel like that’ll be good for our business, and it will, that’s not necessarily putting a lot of gas in that tank beyond something that we should be very much accustomed to over time,” Nye said.
Gaining Confidence
The National Association of Home Builders/Wells Fargo confidence index rose in August to the highest level since 2005 as demand for new homes supports the market, a report yesterday showed.
Employers added the fewest workers to payrolls in four months in July even as the U.S. jobless rate fell, a sign of uneven labor-market gains in the world’s biggest economy, Labor Department data showed earlier this month.
Builders have been hesitant to add employees since the recession, which limits the pace at which the industry can grow, Pierpont’s Stanley said. Payrolls at construction companies have climbed by 325,000 workers since the start of 2011, compared with the 2.2 million employees they cut in the four years ended 2010, according to Labor Department data.
Builders Benefiting
Even so, homebuilders will probably benefit from a constrained supply of existing homes and borrowing costs that are historically low even after a run-up that began in May. The average rate on a 30-year fixed mortgage was at 4.40% in the week ended August 8, compared with a record-low 3.31% reached in November, according to data from Freddie Mac.
Sustained improvement in the U.S. labor market and rising home prices may help prospective buyers feel more confident, extending gains through the second half of the year. Companies such as Tri Pointe Homes Inc., which designs and constructs single-family homes throughout California and Colorado, are already seeing the difference.
“Jobs have proven to be the most fundamental driver along with household formations and consumer confidence,” Douglas Bauer, chief executive officer, said in August 13 conference call to discuss second-quarter earnings, which rose more than the average analyst estimate. “Our company has continued to experience strong traffic in buyer demand in all product segments and markets as rates have moved modestly higher.”
