Housing starts rise on rebound in U.S. multifamily projects

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.”

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