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Housing starts highest in more than four years

October building permits for single-family homes up 2.2%

By Ruth Mantell, MarketWatch

Last Update: 11/20/2012 09:53:44 AM

WASHINGTON (MarketWatch) -- Construction on new homes rose in October to the
highest rate in more than four years, government data showed Tuesday, in another
sign of a strengthening U.S. housing market.

Housing starts rose 3.6% last month to a seasonally adjusted annual rate of
894,000, the highest rate since July 2008, the U.S. Department of Commerce
reported. Starts are up 42% from last year, though the rate remains far below a
bubble peak of almost 2.3 million in 2006.

"The October report is very solid and further supportive of the view that we are
in the midst of a strengthening housing recovery," said Michael Dolega, an
economist with TD Economics.

Economists polled by MarketWatch had expected a decline in housing starts to a
rate of 825,000 from an original estimate of 872,000 in September, due in part to
disruptions from Hurricane Sandy.

However, Sandy had a minimal effect because hit a relatively small portion of the
country and only at the end of the month, government analysts said. By region,
October's starts fell by 6.5% in the Northeast and by 2.5% in the South, while
rising 8.9% in the Midwest and increasing 17.2% in the West.

Meanwhile, building permits, a sign of future demand, declined 2.7% in October to
a rate of 866,000. Permits for single-family homes rose 2.2% in October to an
annual rate of 562,000, while permits for structures with at least two units fell
10.6%.

The surprisingly strong report led analysts with Macroeconomic Advisers, a St.
Louis-based research firm, to raise their estimate for economic growth in fourth
quarter by one-tenth of a percentage point to 1.3%.

"Single-family housing starts and permits were above expectations for October,
suggesting more residential investment in the fourth quarter," Macroeconomic
Advisers analysts wrote in a research note.

Housing construction will "add modestly" to economic growth for the next two
quarters, analysts at New York-based RDQ Economics wrote in a research note.

"However, with residential investment's share of GDP at 2.7%, which is only half
the share seen over the decade prior to the financial crisis, the impact on
growth is likely to be only moderate," according to RDQ analysts.

Housing gaining strength

Tuesday's report is the latest data showing a housing market gaining strength.

Existing-home sales are up nearly 11% from last year, while sentiment among home
builders stands at the highest in more than six years, according to reports
released Monday. Read more on home sales.
(http://www.marketwatch.com/News/Story/Story.aspx?guid={027EDE9E-325A-11E2-A56A-002128040CF6}&siteId=mktw)

Home prices are also on the rise.

Indeed, record-low interest rates and an economy that is adding jobs are
supporting the housing market. However, while low rates are attracting some
buyers, borrowers still face tight credit conditions.

And despite recent gains, the housing market remains far below peak levels, with
millions of workers still unemployed. About one-fifth of mortgage borrowers are
underwater, Federal Reserve Chairman Ben Bernanke noted in a recent speech.

However, with rising house prices and household formation, Goldman Sachs
economists say they expect housing starts to reach a rate of 1.5 million by the
end of 2016.