Economic Report: New-home construction activity continues to rise, as builders seek even more building permits

Economic Report: New-home construction activity continues to rise, as builders seek even more building permits

17 Dec    Finance News

The numbers: Builders began construction on new homes in the U.S. at a pace of 1.37 million in November, the Commerce Department said Tuesday. This represented a 3.2% increase from a revised 1.32 million in October and was 13.6% higher than a year ago.

Meanwhile, permitting activity hit yet another post-recession high. Building permits for privately-owned housing units were authorized at a seasonally-adjusted rate of 1.48 million. That was 1.4% above the pace of 1.46 million set in October and 11.1% above last year’s rate.

Housing starts and building permits both came in above the consensus estimates of economists polled by MarketWatch, which were 1.36 million and 1.44 million respectively.

What happened: Housing starts increased for both single-family (up 2.3%) and multifamily structures (up 2.4%). Regionally though, housing starts varied significantly. Only the West saw an uptick in single-family starts, and the West and the South were the only two regions to experience overall increases in new-home construction. Housing starts fell in both the Northeast and the West.

Construction activity may have gotten a boost in November because of a wetter October than usual, which may have postponed some digging, according to BMO Capital Markets.

The uptick in permits was largely driven by a 4.4% increase in authorizations for multifamily housing developments (compared with just a 0.8% uptick in single-family permits.)

The big picture: The November housing starts and permits data were yet another indication that low mortgage rates continue to provide upward lift for the housing industry. The low cost of debt has revived interest in home buying among many Americans, which was flagging in the face of affordability challenges.

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Because of the low supply of existing homes for sale, home builders are no longer facing any overhang from the pre-recession home-construction boom. Coupled with the high demand for homes, economists argue that housing should continue to provide a boost to the U.S. economy for the foreseeable future, even in the event of a recession. Home-builder sentiment, meanwhile, has soared to the highest level in decades.

This isn’t to say that home builders aren’t facing any headwinds. The high cost of materials, labor and land continue to put pressure on margins. As a result, many builders continue to focus on the top end of the market in terms of price, even though demand is strongest (and supply is tightest) for entry-level homes.

What they’re saying: “I don’t think we will ever get back to historical levels of construction starts unless something changes,” said Ali Wolf, director of economic research for Meyers Research, a data provider that specializes in real-estate development and new home construction. “High construction costs and limited land availability are holding back the housing market from reaching full potential.”

Market reaction: The Dow Jones Industrial Average DJIA, +0.11%   and S&P 500 SPX, +0.14%   increased slightly in early Tuesday trades, while the 10-year Treasury yield TMUBMUSD10Y, -0.09%  initially declined.

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