U.S. homebuilders in July start projects at best rate since '07

In this photo taken Tuesday, June 9, 2015, a roofer works on a home under construction in the Briar Chapel community in Chapel Hill, N.C.
In this photo taken Tuesday, June 9, 2015, a roofer works on a home under construction in the Briar Chapel community in Chapel Hill, N.C.

WASHINGTON -- The rebound in U.S. home construction picked up in July as builders broke ground on more single-family homes than at any time in almost eight years.

Housing starts in July rose 0.2 percent to a seasonally adjusted annual rate of 1.21 million homes, the Commerce Department said Tuesday. Construction of single-family houses accounted for the gain, shooting up 12.8 percent last month to the highest rate since December 2007.

The housing market has strengthened for much of the year, reflecting an increased sense of financial security for many Americans amid steady job growth and relatively low mortgage rates. Continued gains in housing would help extend the current economic expansion.

"More housing starts means more construction jobs as well as confidence from real estate developers that people will be buying," said Tara Sinclair, a George Washington University professor and chief economist for jobs website Indeed. "We'll know the economy is really hitting stride when we see these starts in the range of 1.5 million."

Total housing starts have risen 11.3 percent year-to-date. The market is also attracting more renters, as starts for apartment buildings have climbed 12.2 percent this year despite dropping last month.

"Housing is in a real sweet spot, moving higher but not dangerously so," said Eric Green, head of U.S. economic research at TD Securities in New York, who projected a 1.2 million pace. "The housing market will be strengthening over the second half" of the year.

The improved housing market has already benefited sales at supply stores such as Home Depot. The world's largest home improvement retailer reported Tuesday that sales at U.S. stores open at least one year had climbed 5.7 percent during the second quarter, pushing its stock to an all-time high of $123 in morning trading.

But Tuesday's report also showed the potential limits of gains from construction. The number of building permits fell, a possible sign that demand will need to continue improving to further the pace of homebuilding.

"It is in all likelihood going to take another leg up in new single-family home sales to sustain the pace of single-family starts that was recorded in July," said Joshua Shapiro, chief U.S. economist at the consultancy MFR.

Approved building permits decreased 16.3 percent in July to an annual rate of 1.12 million, after achieving an eight-year high in June.

The decrease likely reflects some pullback after months of gains and was caused primarily by a sharp plunge in permits to build apartment complexes after a tax break expired in New York.

Homebuyers and renters have crowded into the housing market this year, pushing up prices to levels that have worsened affordability and placed a potential cap on sales growth.

Builders have relieved some of the financial pressure by increasing construction, but the increases in housing starts and building permits still lags the surging demand.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday reached 61 this month, up from 60 in July. Any reading above 50 signals expansion.

But only 5.4 months' supply of new homes is available, compared with six months in a healthy market.

In the rental sector, prices are increasing at double the rate of hourly wage growth largely because of fewer vacant apartments available. Home rental prices are up 4.3 percent in the past year, according to the real estate firm Zillow. Average hourly earnings have improved 2.1 percent.

Developers are addressing the recent shift to rentals as more baby boomers start to downsize and millennials rent longer before buying their first homes.

The real estate firm Trulia found that permitting activity for apartment complexes has surged well above the historical average in many markets.

In the New York City metro area, building permits for multifamily complexes is 423 percent higher than the 24-year average. The increase is 295 percent in Boston, 138 percent in Philadelphia, 161 percent in Los Angeles, 102 percent in San Francisco and 114 percent in Houston.

"A lot of this has been in the works for a while," said Selma Hepp, chief economist at Trulia. "Builders plan well ahead -- and so looking at the demographic trends they knew would be coming into full force, they wanted to take advantage of that."

The increased demand primarily reflects an economy operating from a stronger foundation of hiring.

Employers added 215,000 jobs in July, while the unemployment rate held at 5.3 percent for the second straight month. The economy has benefited from nearly 3 million new jobs in the past year, an influx of paychecks that has helped the housing and construction sectors.

Low mortgage rates have also helped sales. The average 30-year, fixed mortgage rate was 3.94 percent last week, according to the mortgage firm Freddie Mac, the Federal Home Loan Mortgage Corp. That is about two percentage points below the historical average.

Information for this article was contributed by Shobhana Chandra of Bloomberg News.

Business on 08/19/2015

Upcoming Events