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Home Starts in U.S. Rise to Highest Level Since 2008: Economy

New home construction in Dublin, California.

By Michelle Jamrisko - Jul 18, 2012, Bloomberg

New U.S. home construction rose in June to the highest level in almost four years, indicating the residential real estate market is strengthening even as other parts of the economy cool.

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate.

Record-low mortgage rates and cheaper properties are luring buyers, prompting builders such as Ryland Group Inc. (RYL) to boost construction. The gain underscores comments by Federal Reserve Chairman Ben S. Bernanke that the industry is on the mend, three years since the start of the expansion.

“Low borrowing costs certainly help at the margin, but the biggest thing is affordability in terms of the pricing,” said Stephen Stanley, chief economist at Pierpont Securities LLC in StamfordConnecticut, who correctly forecast June starts. Housing is “making a very modest contribution to growth. Unfortunately, it feels like everything around it is crumbling.”

The June pace was the fastest since October 2008, and estimates in the Bloomberg survey ranged from 710,000 to 800,000. Ground-breaking on new homes in May was revised from a previously reported 708,000.

Building permits fell in June, reflecting a drop in applications for apartment construction.

Stocks Rise

Stocks climbed as technology and industrial companies gained. The Standard & Poor’s 500 Index increased 0.5 percent to 1,369.9 at 11:12 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 1.48 percent from 1.51 percent late yesterday.

Elsewhere, the Bank of England has joined counterparts around the world in expanding measures to support growth as the threat from the euro-area turmoil increases.

The Monetary Policy Committee said while the arguments for and against cutting the benchmark rate from the current record low of 0.5 percent hadn’t changed since June, they may be reviewed in the coming months, according to the minutes of its July 4-5 meeting. The MPC voted 7-2 to increase quantitative easing by 50 billion pounds ($78 billion) to 375 billion pounds at the meeting.

Bernanke, in his semi-annual testimony to Congress on monetary policy, said the U.S. also has tools at its disposal in case the economic recovery fails to stoke job gains. He said yesterday that housing is improving.

Fed’s Bernanke

Growth in construction and “historically low mortgage rates” are among “modest signs” of a housing recovery, even as buyers show concern about personal finances and the broader economy and have difficulty meeting lending standards, Bernanke told the Senate Banking Committee.

Residential investment added 0.42 percentage point to economic growth in the first three months of the year, the most since the second quarter of 2010, according to Commerce Department figures.

Figures earlier this week showed retail sales dropped in June for a third month, a sign slower job creation is taking a toll on the biggest part of the economy.

Construction of single-family houses increased 4.7 percent to a 539,000 rate, the fastest since April 2010, from 515,000 a month earlier, today’s figures showed. Work on apartment buildings and other multifamily units climbed 12.8 percent to an annual rate of 221,000 in June from 196,000 a month earlier.

By Region

Two of four regions had an increase in overall starts in June, including a 36.9 percent jump in the West to a 219,000 annual rate, the fastest since April 2008. Starts climbed 22.2 percent in the Northeast.

“We are seeing different improvements in different parts of the country, but we’re seeing improvement everywhere,” Larry Nicholson, president and chief executive officer at West Lake Village, California-based builder Ryland Group, said on a June 13 conference call. “So that’s the key there.”

A report yesterday showed confidence among U.S. homebuilders climbed in July by the most since September 2002. An index of builder sentiment from the National Association of Home Builders/Wells Fargo increased by 6 points in July to 35.

One reason for optimism is falling interest rates have helped make homes more affordable. The average 30-year, fixed mortgage rate declined to 3.56 percent last week, the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.

‘Steady Recovery’

“Evidence from the field suggests that the ‘for sale’ housing market has, in fact, bottomed and that we have commenced a slow and steady recovery process,” Stuart Miller, chief executive officer at Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, said in a June 27 statement.

Home prices are stabilizing and starting to increase. The S&P/Case-Shiller index of property values adjusted for seasonal variations rose 0.7 percent in April, the third straight gain. Stronger home sales will bolster producers of building materials.

At the same time, limited employment opportunities and competition from distressed properties are challenges for a housing market that’s struggled to gain momentum.