New-home construction in the U.S. surged in September to the highest level in four years, a sign the industry is on the road to recovery.
Starts jumped 15 percent to an 872,000 annual rate last month, the most since July 2008 and exceeding all forecasts in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. The median estimate of 81 economists surveyed by Bloomberg called for 770,000. An increase in building permits may mean the gains will be sustained.
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. At the same time, the level of starts remains below the pre-recession peak, limiting how much the industry can boost the rate of expansion.
“The housing market certainly has turned,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who’s forecast for 790,000 starts was among the highest. “But we still have a long way to go. The good thing is that construction will pull employment with it.”
Stock-index futures extended earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in December climbed 0.3 percent to 1,452.8 at 8:45 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.77 percent from 1.72 percent late yesterday.
Estimates in the Bloomberg survey for housing starts ranged from 735,000 to 800,000, and 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 gain since April.
Building permits, a proxy for future construction, jumped to an 894,000 annual rate, also exceeding the median forecast and the most since July 2008. 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.
Construction of single-family houses climbed 11 percent from August to a 603,000 rate. Work on multifamily homes, such apartment buildings, increased 25.1 percent to an annual rate of 269,000.
Three of four regions showed gain in starts last month, led by a 20.1 percent jump in the West. The Northeast showed a decline.
A harbinger of progress for homebuilders, demand for new homes has hovered at a two-year high. Homes sold at a 373,000 annual pace in August and at a 374,000 rate in July, the best two months since the March-April 2010, according to Commerce Department figures.
That demand may, in part, be driven by a growing population. The number of households in the U.S. grew 2 percent in 2011, the biggest gain in 10 years, to 119.9 million, according to the most recent Census Bureau data.
Housing starts plummeted during the recession, with the three years between 2009-2011 marking the worst period for homebuilding in records going back to 1959. Starts reached a pre-recession peak of 2.1 million in 2005, the most in more than 30 years, before slumping to a low of 554,000 in 2009.
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.
Lower borrowing costs are helping bolster home demand as well. The average rate on a 30-year fixed mortgage 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.
Lending could be further stimulated by the Federal Reserve’s plan for open-ended purchases of mortgage-backed securities. Fed Chairman Ben S. Bernanke called housing “one of the missing pistons in the engine” in September as he announced the third round of quantitative easing, meant to boost growth and reduce unemployment.
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,” said Larry Seay, chief financial officer at Meritage Homes Corp. (MTH) in Scottsdale, Arizona, during an investor conference on Oct. 11. “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.”
Weak employment growth, nonetheless, will probably prevent a rapid acceleration in the housing market. There were 12.1 million Americans unemployed in September, meaning incomes will be slow to grow.