Housing starts jump 15.7% in July

Apartment builds at 33% reflect weak wages, loan rates

A worker clings to the frame of a house being built in Belmar, N.J., on July 30. Home construction increased 15.7 percent in July, the Commerce Department reported Tuesday.
A worker clings to the frame of a house being built in Belmar, N.J., on July 30. Home construction increased 15.7 percent in July, the Commerce Department reported Tuesday.

WASHINGTON -- Housing starts surged in July to the highest level in eight months, the Commerce Department reported Tuesday, underscoring the recent pickup in builder optimism as the U.S. residential real-estate market gains some traction.

Construction increased 15.7 percent in July to a seasonally adjusted annual rate of 1.09 million homes. That was the fastest pace since November and followed declines of 4 percent in June and 7.4 percent in May.

Applications for building permits, considered a good sign of future activity, also showed strength in July, advancing 8.1 percent to an annual rate of 1.05 million, after declines of 3.1 percent in June and 5.1 percent in May.

"Recent news on the housing front has been relatively encouraging," Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, said in a research note. "'With affordability remaining high, mortgage rates still low, and labor market activity accelerating, we expect the housing market trajectory to continue gradually improving in the coming months."

The July rebound in home construction reflected strength in single-family home construction, which rose 8.3 percent, and in apartment construction, which was up 33 percent.

The strength in July was led by a 44 percent rise in construction starts in the Northeast. Housing construction was up 29 percent in the South, recovering from a 26.8 percent plunge the month before, blamed, in part, on heavy rains in that part of the country. Sales rose 18.6 percent in the West but fell 24.8 percent in the Midwest.

Economists noted that the July performance was much better than expected, and June was revised significantly higher, both good signs for the future.

Sal Guatieri, senior economist at BMO Capital Markets, said solid job growth and a recent decline in mortgage rates were helping construction. But he said weak wage growth and tight lending standards were still depressing activity, especially among first-time buyers.

A report Monday indicated home builders are feeling more confident about their sales prospects, a hopeful sign that home construction and sales of newly built homes could pick up after stalling in recent months.

The National Association of Home Builders/Wells Fargo builder sentiment index rose in August to 55, up two points from a revised 53 for July. That is the third straight monthly increase and put the index at its highest reading since January, when it was 56. Readings above 50 indicate more builders view sales conditions as good rather than poor.

Builders' views of current sales conditions for single-family homes, their outlook for sales over the next six months and traffic by prospective buyers all increased in August, brightening the outlook.

Sales of new homes are running behind last year's pace. They fell 8.1 percent in June to a seasonally adjusted annual rate of 406,000.

A mix of rising home prices, higher mortgage rates and weak wage growth have made it more difficult for potential buyers to buy a newly built home. These factors have particularly depressed demand by first-time buyers.

But economists are still looking for a rebound, given the fact that the U.S. economy has been adding jobs at a healthy clip, with gains topping 200,000 jobs for six straight months through July.

Housing, while still a long way from the boom of the last decade, has been recovering over the past two years. Though new homes represent only a fraction of the housing market, they have a significant impact on the economy. Each home built creates an average of three jobs per year and generates about $90,000 in tax revenue, according to data from the Home Builders.

The U.S. requires between 1.6 million and 1.9 million new units per year just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.

New orders at the Ryland Group Inc. climbed 1.7 percent, to 2,228 homes, in the three months ended June 30. It was the best quarter in seven years for the Westlake Village, Calif.- based company, and President and Chief Executive Officer Larry Nicholson said he is optimistic about the outlook.

"We remain confident about the future of housing," Nicholson said on a July 31 earnings call. "We see the markets continue to move forward. We have good traffic. We're making sales. We're making margin. We're pretty upbeat for what we see for the rest of the year."

Information for this article was contributed by Martin Crutsinger of The Associated Press and Lorraine Woellert and Chris Middleton of Bloomberg News.

Business on 08/20/2014

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