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Home construction hits fastest pace since 2008
UPDATE: Home construction hits fastest pace since 2008
10:14 AM ET 12/18/13 | MarketWatch
By Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) -- Construction on new U.S. homes soared in November to hit the fastest pace since early 2008, signaling that the housing market's recovery is shaking off rising mortgage rates.
Housing starts leaped 22.7% in November to reach a seasonally adjusted annual rate of 1.09 million, with surges for single-family homes and apartments, according to the U.S. Department of Commerce. had expected overall housing starts in November to hit a rate of 963,000.
Builders and buyers are becoming accustomed to the new price environment, and, as long as jobs keep showing healthy growth, the housing market's rebound will also continue, analysts say.
"The re-acceleration in activity is a clear indication of the resiliency in the housing market and should provide further confirmation of the sustainability of the recovery even if the [Federal Reserve] proceeds with its plans to cut back on asset purchases," Millan Mulraine, director of U.S. research and strategy at TD Securities, wrote in a research note. "In fact, with the recent buoyancy in labor market activity and affordability conditions remaining very favorable, we expect the re-acceleration in the pace of housing starts to be sustained in the coming months."
A report earlier this week about home builders signaled that their confidence rose in December to the highest level in four months, pumped up by more optimism on current sales of single-family homes. The National Association of Home Builders, a trade association, said it is looking for a "gradual improvement" in the recovery in 2014.
There's certainly room to grow. Including November's leap, construction rates remain far from the 1.7 million starts per year that economists say are needed to maintain current stock and meet demand for replacement and second homes. During a 2006 bubble peak, starts hit a rate of almost 2.3 million.
"With starts still below the level needed simply to satisfy household formation, there is still plenty of upside for homebuilding," Paul Diggle, property economist at Capital Economics, wrote in a research note.
For their part, builders are reporting strengthening financial results, including higher prices for homes. Officials at Lennar (LEN), for example, said early Wednesday that profit and revenue jumped up in the fourth quarter from the year-earlier period.
The Fed and housing
Markets will learn Wednesday afternoon whether the Federal Reserve has decided to start to paring its massive asset-purchase plan that has been exerting downward pressure on long-term rates. Mortgage rates, which remain relatively low, started rising in early on speculation about the Fed tapering its asset purchases, curbing some demand.
Indeed, at a prior meeting, when the Fed decided to maintain its massive asset-purchase plan, officials noted that the housing sector's recovery had "slowed somewhat." But Wednesday's data, along with other positive reports, make a convincing case for a revived housing market.
"This is a strong report on housing activity, especially given the gains in single-family starts and permits, that adds to the case for a tapering announcement from the Fed today. At the very least, it seems likely the Fed will change its language on housing in its policy statement," RDQ Economics analysts wrote in a research note.
While officials want to avoid hitting the housing market's recovery, there's also pressure to move forward with tapering.
But rising mortgages aren't the only headwinds facing the housing market. One impediment to demand has been access to mortgage credit. But banks, which have seen plunging applications to refinance, are trying to make more revenue from purchase mortgages, and making it easier for borrowers to obtain loans. Another demand hurdle -- low inventory -- could also be overcome if builders, encouraged by rising prices, speed up production, and more homeowners become able and willing to place their homes on the market.
Still, the housing-finance system is in somewhat of a state of flux with new mortgage rules, and plans to lower limits for government-backed mortgages. Plus, U.S. lawmakers are working on housing-finance reform, including the role of mortgage buyers Fannie Mae (FNMA) and Freddie Mac (FMCC), adding one more element of uncertainty.
Home-construction details
It's worth noting that the monthly home-construction data are volatile, and could see revisions. Still, overall starts in November were up 29.6% from the same period in the prior year, further evidence of the housing market's continuing recovery.
Starts for single-family homes, the lion's share of the market, rose 20.8% in November to an annual rate of 727,000, the highest rate since March 2008. Meanwhile, starts in buildings with at least five units rose 26% to a rate of 354,000.
Looking at future building, the government reported Wednesday that permits, a sign of demand, fell 3.1% in November to an annual rate of 1.01 million. Permits for single-family homes rose 2.1% to a rate of 634,000, the highest rate since April 2008. Meanwhile, permits in buildings with at least five units dropped 11.5%.
The government also reported data on Wednesday that had been delayed by the shutdown. Overall housing starts in October hit a rate of 889,000, while September's starts reached a rate of 873,000.
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-Ruth Mantell; 415-439-6400; AskNewswires@dowjones.com
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December 18, 2013 10:14 ET (15:14 GMT)
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