Housing Starts in U.S. Surge to Second-Highest Level Since 2007

New-home construction in the U.S. climbed in June to the second-highest level since November 2007 as builders stepped up work on apartment projects.

Housing starts rose 9.8 percent to a 1.17 million annualized rate from a revised 1.07 million in May that was stronger than previously estimated, figures from the Commerce Department showed Friday in Washington. The median estimate of economists surveyed by Bloomberg was a 1.11 million rate. Ground-breaking on multifamily dwellings jumped 29.4 percent.

Building permits for single and multifamily properties, a gauge of future construction, climbed to an almost eight-year high, the report showed. Steady job gains, low mortgage rates and a gradual easing of lending standards are propelling sales, indicating housing will become a bigger source of strength for the economy.

“They’re pretty positive numbers,” said Lewis Alexander, chief economist at Nomura Securities International Inc. in New York. “You’ve got decent employment growth that’s been particularly good for young people, you’ve got relatively low interest rates, somewhat easing of credit standard — all of those things are helping.”

Estimates for housing starts in the Bloomberg survey of 76 economists ranged from 1.03 million to 1.23 million. The May figure was revised up from 1.04 million.

The gain in starts of multifamily homes followed a 16.9 percent decrease the previous month and a 37.5 percent April surge. Data on these projects, which have led housing starts in recent years, can be volatile.

Single-Family Homes

Starts of single-family houses eased to a 685,000 rate from 691,000 a month earlier, the report showed.

Three of four regions had a decrease in single-family construction in June, paced by a 27.3 percent drop in the Northeast and a 7.1 percent decline in West, according to the report.

Building permits increased 7.4 percent in June to a 1.34 million annualized rate, the highest since July 2007. They were projected to fall to 1.15 million.

Applications to begin work on single-family projects rose to 687,000 in June, the most since January 2008. Permits for construction of apartments and other multifamily dwellings rose 15.3 percent after a 20 percent jump the previous month.

Builder Confidence

The starts and permits data are consistent with a report Thursday that showed builders are increasingly confident in the outlook. The National Association of Home Builders/Wells Fargo said its sentiment gauge held July at the highest level since November 2005.

Builders and lenders alike are benefiting from an improving housing market.

“Housing activity has been especially encouraging with second quarter position to be the best quarter for home sales since 2007,” John Stumpf, chief executive officer at Wells Fargo Co., said on a July 14 earnings call. Employment opportunities and higher consumer confidence make “me optimistic that the economic expansion will sustain momentum into the second half of the year, and Wells Fargo should benefit from the increase in economic activity.”

A steadily strengthening job market “is perhaps the most important near-term driver for the homebuilding industry,” Bloomberg Intelligence analyst Drew Reading wrote in a July 10 research note. Even though average monthly payroll gains have slowed this year to around 208,000, that “may continue to provide a boost to demand,” he said.

Young Adults

Job gains among young adults — those 25 to 34 years old — may also help propel sales of entry-level homes, Reading wrote, especially as they set off on their own to form households. That could improve the outlook of companies such as LGI Homes Inc., D.R. Horton Inc. and KB Home, which have the most exposure to the entry-level market.

Historically low borrowing costs, combined with rising rents, may also may home-buying more compelling. The average 30-year fixed-rate mortgage was 4.04 percent in the week ended July 9, compared to an average 9.4 percent in the 30 years leading up to the recession, according to data from Freddie Mac in McLean, Virginia.

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