The pace of home construction reached a more than five-year high in November as builders boosted inventory to keep pace with demand.
Housing starts jumped 22.7% to a 1.09 million annualized rate, exceeding all forecasts of economists surveyed by Bloomberg and the most since February 2008, the Commerce Department reported today in Washington. Permits for future projects held near a five-year high, indicating the pickup will be sustained into 2014.
Builders are optimistic in the face of higher mortgage rates as they benefit from a shortage of available properties that’s driving home-price appreciation. Federal Reserve officials meeting today are assessing whether the economy is strong enough to warrant scaling back record bond purchases, including $40 billion a month in mortgage-backed debt.
“We need to build more housing, it’s about getting builders back up to scale,” Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, said before the report. “We’re still probably below population requirements.”
The median estimate of 72 economists surveyed by Bloomberg called for 955,000. Estimates ranged from 868,000 to 1.04 million. Last month’s jump was the biggest since January 1990.
Today’s report offered the first look at starts data for the past three months after the September and October figures were delayed by the government shutdown in October.
November building permits fell 3.1% from the prior month to a 1.01 million rate, exceeding the projected 990,000 annual pace that was the median estimate in the Bloomberg survey. October’s 1.04 million level was the highest since June 2008.
Labor-market gains and rising real estate values have homebuilders upbeat about the industry’s prospects. Builder sentiment climbed in December to match the highest level in eight years. The National Association of Home Builders/Wells Fargo gauge rose to 58, the Washington-based group reported yesterday. An index above 50 means more respondents report good market conditions.
At the same time, higher home prices, political discord in Washington and rising interest rates have contributed to a cooling in demand, according to Robert Toll, chairman and co- founder of luxury-home builder Toll Brothers Inc.
“We believe this leveling of demand will prove temporary based on still-significant pent-up demand, the gradual strengthening of the economy and the improving prospects of our affluent customers,” Douglas Yearley Jr., Toll’s chief executive officer, said in the statement.
The Horsham, Pennsylvania-based company’s fourth-quarter revenue was $1.04 billion, up from $632.8 million a year earlier. The average price of homes sold was $703,000, up from $651,000 in the previous three months. Signed contracts rose 6% to 1,163 homes, compared with 70% growth a year earlier.
Fed policy makers are weighing when to begin tapering $85 billion in monthly bond purchases. The Fed has said it will keep buying assets “until the outlook for the labor market has improved substantially.”
Borrowing costs for homebuyers have climbed since the central bank signaled earlier this year that it was preparing to reduce asset purchases. The average 30-year fixed-rate mortgage was 4.42% for the week ended Dec. 12, compared with 3.32% a year ago, according to Freddie Mac in McLean, Virginia.
Mortgage costs remain historically low and the labor market is on the mend, giving builders and their suppliers an upbeat outlook on the potential for continued growth. The Harvard Joint Center for Housing estimates that the U.S. requires between 1.6 million to 1.9 million starts just to accommodate population growth and new households.
“Housing has started to recover, but we are still very much in the early stages,” said Patty Bedient, executive vice president and chief financial officer at lumber supplier Weyerhaeuser Co. in Federal Way, Washington.
“While the exact shape of the recovery is difficult to predict, there’s really no disagreement that the overall direction is up,” Bedient said on a Dec. 17 conference call with investors. “We believe housing will be very positive going forward.”
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