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Housing Starts in U.S. Probably Climbed to Almost Four-Year High
By Michelle Jamrisko
September 19, 2012 8:12 AM EDT
Worker Sean Smith nails down sheathing on the second floor of a home being built in Peoria, Illinois, on Aug. 15, 2012. Photographer: Daniel Acker/Bloomberg

New-home construction in the U.S. probably rose in August to the highest level in almost four years, showing residential real estate is sustaining a recovery even as the broader economy sputters, economists said before a report today.

Builders broke ground on 767,000 houses at an annual rate, up from 746,000 in July and the most since October 2008, according to the median estimate of 85 economists surveyed by Bloomberg News. Another report may show sales of existing homes advanced for a second month.

Builders such as Hovnanian Enterprises Inc. (HOV) are gaining confidence as record-low mortgage rates, lower prices and rising rents make buying a house more attractive. At the same time, unemployment, stagnant wages and tight credit remain obstacles to further strengthening in the industry that helped precipitate the recession.

“We expect housing to be a bright spot,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York. Nonetheless, “there’s still foreclosures, there’s still delinquencies, people are still cutting on mortgage debt.”

The starts data are due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 740,000 to 800,000. Building permits, a proxy for future construction, may have declined 1.9 percent to a 796,000 annual rate after reaching a four-year high in July, according to the survey median.

At 10 a.m., the National Association of Realtors may report sales of previously owned homes climbed 2 percent to a 4.56 million annual rate in August from 4.47 million the prior month, the survey median showed.

Gaining Confidence

Construction company leaders are becoming more optimistic. The National Association of Home Builders/Wells Fargo index of builder confidence climbed in September to the highest level in more than six years, the Washington-based group said yesterday.

Investors have adjusted accordingly. The Standard & Poor’s Supercomposite Homebuilder Index (S15HOME) has increased 77 percent this year through yesterday, outpacing a 16 percent gain for the broader S&P 500 (SPX) Index.

Borrowing costs and home prices remain favorable. The average rate on a 30-year fixed mortgage held at 3.55 percent in the week ended Sept. 13, near a record-low of 3.49 reported July 26 in data dating to 1971, according to McLean, Virginia-based Freddie Mac. The median price of a new house was down 2.5 percent in July from the same time last year, according to figures from the Commerce Department.

Sales Improving

Demand is improving as a result. Sales of new homes rebounded in July to a two-year high, Commerce Department figures showed Aug. 23. Red Bank, New Jersey-based Hovnanian Enterprises is among builders trying to keep up.

“Our communities are selling out more quickly and literally caught us without being able to replenish as fast as we’d like,” Ara K. Hovnanian, the company’s chairman, president and chief executive officer, said on a Sept. 6 earnings call. “We continue to look for new land opportunities throughout all of our markets.”

Another reason for the boost in sales may be that rents are climbing. The cost of leasing a primary residence was up 2.6 percent in the year ended August, exceeding the 1.7 percent gain in average hourly wages during the same period, according to data from the Labor Department.

Rising rents may also appeal to investors, said BNP Paribas’s Shulyatyeva. “People can buy very cheap houses, rents are on the rise -- they can get a good yield out of it,” she said.

Fed Aid

The industry may be further helped 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” last week as he announced the third round of quantitative easing, meant to boost growth and reduce unemployment.

“Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing,” he said.

Bloomberg Survey ===================================================== Housing Building Exist Starts Permits Homes ,000’s ,000’s Mlns ===================================================== Date of Release 09/19 09/19 09/19 Observation Period Aug. Aug. Aug. ---------------------------------------------------- Median 767 796 4.56 Average 768 797 4.56 High Forecast 800 844 4.85 Low Forecast 740 760 4.45 Number of Participants 85 56 78 Previous 746 811 4.47 ---------------------------------------------------- 4CAST 760 770 4.59 ABN Amro 761 --- 4.54 Action Economics 775 790 4.62 Aletti Gestielle 760 790 4.55 Ameriprise Financial 765 800 4.55 Banca Aletti 754 810 4.62 Bank of the West 770 792 4.58 Bank of Tokyo-Mitsubishi 800 800 4.50 Bantleon Bank AG 780 800 4.60 Barclays 750 --- 4.56 BBVA 760 800 4.57 BMO Capital Markets 758 --- 4.51 BNP Paribas 780 --- 4.55 BofA Merrill Lynch 770 --- 4.50 Briefing.com 775 775 4.55 Capital Economics 765 --- 4.65 CIBC World Markets 775 785 4.65 Citi 770 790 4.55 ClearView Economics 740 760 4.55 Comerica 767 --- 4.56 Commerzbank AG 780 820 4.60 Credit Agricole CIB 780 795 4.50 Credit Suisse 775 805 4.60 Daiwa Securities America 775 --- 4.60 Danske Bank 790 795 4.51 DekaBank 755 780 4.60 Desjardins Group 775 800 4.60 Deutsche Bank Securities 765 780 4.50 Deutsche Postbank AG 790 --- --- DZ Bank 758 790 4.49 Exane 780 --- 4.56 Fact & Opinion Economics 760 --- 4.50 First Trust Advisors 754 --- 4.49 FTN Financial 755 775 4.57 Goldman, Sachs & Co. 783 --- 4.56 Helaba 780 780 4.60 High Frequency Economics 780 790 4.50 HSBC Markets 758 787 4.58 Hugh Johnson Advisors 785 --- 4.59 IDEAglobal 755 800 4.55 IHS Global Insight 762 828 4.52 Informa Global Markets 750 785 4.54 ING Financial Markets 782 784 4.50 Insight Economics 755 --- 4.50 Intesa Sanpaulo 750 790 --- J.P. Morgan Chase 765 825 4.55 Janney Montgomery Scott 755 817 4.54 Jefferies & Co. 760 770 4.60 John Hancock Financial 770 796 4.60 Landesbank Berlin 780 815 --- Landesbank BW 775 800 --- Lloyds Bank 765 795 4.50 Maria Fiorini Ramirez 765 --- 4.60 Market Securities 767 --- 4.83 MET Capital Advisors 790 --- 4.50 Mizuho Securities 754 --- 4.52 Moody’s Analytics 778 808 4.45 Morgan Stanley & Co. 750 --- 4.60 National Bank Financial 780 790 4.55 Natixis 760 --- 4.56 Nomura Securities 779 844 4.85 Nord/LB 760 800 --- OSK Group/DMG 770 --- 4.56 Oxford Economics 760 805 4.48 Pierpont Securities 770 --- 4.57 PineBridge Investments 783 --- 4.70 Raiffeisenbank International 800 820 4.60 Raymond James 770 810 4.52 RBC Capital Markets 755 --- 4.50 RBS Securities 755 --- 4.65 Regions Financial 780 --- 4.62 Renaissance Macro Research 760 790 4.60 Scotiabank 760 --- 4.50 SMBC Nikko Securities 770 780 4.60 Societe Generale 770 825 4.55 Standard Chartered 765 785 4.61 Stone & McCarthy 760 790 4.53 TD Securities 790 800 4.50 UBS 775 800 4.50 UniCredit Research 780 780 --- Union Investment 760 800 --- University of Maryland 765 798 4.61 Wells Fargo & Co. 774 --- 4.58 Westpac Banking Co. 746 819 4.58 Wrightson ICAP 770 800 4.55 =====================================================

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net