Housing starts in the U.S. surged 15 percent in September to the highest level in four years, adding to signs of a revival in the industry at the heart of the financial crisis.
Housing starts are specific to construction, as opposed to home sales… which are also on the rise: Home Sales Jump.
Beginning home construction jumped last month to an 872,000 annual rate, the fastest since July 2008 and exceeding all forecasts in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. An increase in building permits may mean the gains will be sustained.
Here in Montreux, we have seen a lot of new home construction. Lakecrest Builders, a Reno custom home builder, is under construction on a handful of homes at Montreux alone.
“It’s no longer a question of whether the industry is rebounding,” Larry Sorsby, chief financial officer of Red Bank, New Jersey-based Hovnanian Enterprises Inc. “There is clear evidence that we have bounced off the bottom and are in the midst of a recovery.”
A pickup in sales stoked by record-low mortgage rates and population growth combined with dwindling supply indicates construction can continue strengthening, contributing more to economic growth. Improving demand may also help revive a part of the job market that’s seen construction employment fall by almost 2 million since the end of 2007.
“This is good news for the labor market,” said Anika Khan, a Charlotte, North Carolina-based senior economist at Wells Fargo & Co. If single-family starts “continue to show this positive momentum, and we expect they will, we’ll likely start to see some construction jobs come back.”
Not only will construction starts bring new jobs, but it also will bring new life into the Reno real estate market.
The median housing starts projection in the Bloomberg survey called for a 770,000 pace, and estimates ranged from 735,000 to 800,000. The prior month was revised up to 758,000 from a previously reported 750,000 pace.
Over the past 12 months, work began on 34.8 percent more homes, the biggest year-over-year increase since April.
The brighter building environment has made construction companies less pessimistic. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006 and the sixth-straight gain, figures showed yesterday. Still, readings below 50 mean more respondents said conditions were poor.
“There is going to be a continued housing recovery over the next few years,” Larry Seay, chief financial officer at Meritage Homes Corp (MTH). “Pent-up demand that has built up from people deferring household formation is going to help buoy the recovery. High affordability not only with house prices being very low, but also interest rates being as low as they’ve been in decades, and all that translating into an improved buyer confidence.”
Miami-based Lennar, the third-largest U.S. homebuilder by revenue, said Sept. 24 that its quarterly profit more than quadrupled as demand for new houses climbed. Third-quarter revenue rose to $1.1 billion from $820.2 million a year earlier. New orders climbed 44 percent to 4,198 homes, and contract backlogs, an indication of future sales, increased 79 percent.
Building permits, a proxy for future construction, jumped to an 894,000 annual rate, also exceeding the median forecast and the fastest since July 2008, the Commerce Department’s figures showed. They were projected to rise to 810,000, with a range of 780,000 to 850,000.
The number of permits swelled by 45.1 percent since September 2011, the biggest annual jump since 1983.
The West showed the biggest gain in housing starts last month, with a 20.1 percent jump. The South and Midwest also showed increases, while the Northeast had a decline.
It’s no secret the western states—including Nevada—have been hit the hardest from the housing down-turn. So, these numbers are really exciting. The Montreux real estate market has seen gains in home sales. My latest Montreux real estate report details these numbers.
Available Home Supply Diminishes
As a result, the supply of new homes available for purchase has diminished. There were enough properties on the market in August to last 4.5 months at the current sales pace, matching July as the lowest level in almost seven years, Commerce Department figures show.
Housing, which traditionally leads economic recoveries, has lagged this time because the financial crisis led to the first nationwide decline in home prices since the Great Depression, leaving many homeowners with loans that exceeded the value of their homes.
Residential construction contributed 0.2 percent points to gross domestic product in the second quarter of this year after 0.4 point in the first three months.
In September, Federal Reserve Chairman Ben S. Bernanke called housing “one of the missing pistons in the engine” as he announced the third round of large-scale asset purchases intended to push down long-term interest rates and spur growth.
Now some policy makers are starting to take note of the revival.
We have seen a good mix of homes on the market and new construction here in Reno. We continue to update our Montreux real estate listings for sale and, as I mentioned earlier, new home construction is on the rise… especially for Reno custom home builder Lakecrest Builders.
Signs of Life
“Housing is once more showing signs of life,” John Williams, president of the Federal Reserve Bank of San Francisco, said in a speech this week. “The housing recovery includes a rebound in home construction, something particularly important for the health of the overall economy.”
Borrowing costs pushed lower by the Fed are bolstering home demand, even as tighter credit standards make it harder for many Americans to get a mortgage. The average 30-year fixed rate was 3.39 percent in the week ended Oct. 11, near a record-low of 3.36 reported Oct. 4, according to data from Freddie Mac that dates back to 1971.
Weak employment growth is an obstacle to a rapid housing recovery. There were 12.1 million Americans unemployed in September, meaning incomes will be slow to grow.
I think it’s safe to say we’re seeing some good signs of growth. I believe the real estate market will make a major move upward once the unemployment rate goes down.