New-home construction up 16.9%

U.S. building surges in December to highest level in 13 years

Housing construction in the U.S. has been increasing since July as mortgage rates fall and demand rises.
Housing construction in the U.S. has been increasing since July as mortgage rates fall and demand rises.

WASHINGTON -- Construction of new homes surged in December to the highest level in 13 years, capping a year in which falling mortgage rates and a strong labor market helped lift the prospects of the housing industry.

The Commerce Department reported Friday that builders started construction on 1.61 million homes at a seasonally adjusted annual rate in December, up 16.9% from the November pace of home building.

Housing construction has been rising since July, helped by falling mortgage rates and increased demand as the unemployment rate approached a half-century low. Housing starts for the year had their best showing since 2007.

The December building rate was the strongest number for the month since December 2006 during the last housing boom.

Applications for building permits, considered a good sign of future activity, fell 3.9% in December to an annual rate of 1.42 million, but remained well above the pace in July.

Construction of single-family homes rose 11.2% to an annual rate of 1.06 million homes last month while apartment construction fell 9.6%.

The 1.29 million units constructed for all of 2019 was up 3.2% from the previous year and was the best showing since 1.36 million homes were built in 2007. As the housing boom was reaching its peak, construction was started on a total of 2.07 million homes in 2005, the highest total for any year in that boom.

By region, construction was up 25.5% in the Northeast, 37.3% in the Midwest, 9.3% in the South and 19.8% in the West.

The data indicates residential construction added to fourth quarter growth after contributing in the previous quarter for the first time since the end of 2017. While the spike may not be immediately sustained at these levels, demand has been fueled by mortgage rates near a three-year low as the job market remains resilient and wage gains help put money into the pockets of potential home buyers.

The strong overall reading on starts corroborates a jump in developers' confidence. U.S. homebuilder sentiment posted the highest back-to-back readings since 1999 in December and January amid a jump in prospective buyers and a bump in the sales outlook.

The median forecast in a Bloomberg survey of economists called for starts to rise to a 1.38 million pace. Estimates ranged as high as 1.48 million.

About 179,000 homes were authorized but not yet started in December, down 6.3% from the previous month.

The report, produced jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, has a wide margin of error, with a 90% chance that the headline housing starts figure was between a 4.1% and 29.7% gain.

U.S. home prices rose the most in 19 months in December, fueled by low mortgage rates and the tightest supply on record, according to Redfin.

Prices jumped 6.9% from a year earlier to a median of $312,500, the biggest annual increase since May 2018, the brokerage said in a report Friday. Values fell in just two of the 85 largest metropolitan areas Redfin tracks: New York, with a 2.4% decline, and San Francisco, down 1.7%.

Low borrowing costs and the strong economy brought buyers into the market, boosting competition for the slim supply of available homes. Prices heated up in such West Coast areas as Seattle and Los Angeles, "which indicates the slowdown of 2019 has officially ended in these markets," said Daryl Fairweather, Redfin's chief economist.

Some of the most-affordable cities in Redfin's study had the biggest price gains, led by Memphis, with a 16% jump.

The inventory of available homes for sale nationwide tumbled 15% from a year earlier. There were fewer properties for sale last month than at any time since at least December 2012, the brokerage said.

"Many homeowners have refinanced their mortgages to take advantage of low interest rates and therefore feel committed to staying put," Fairweather said. "The lack of homes for sale is going to fuel competition and price growth in 2020."

Information for this article was contributed by Martin Crutsinger of The Associated Press and by Ana Monteiro and Prashant Gopal of Bloomberg News.

Business on 01/18/2020

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