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2015: issue 5
MARKET WATCH: Housing starts surge 20% By Ruth Mantell, Market Watch WASHINGTON — In a show of housing-market vitality, the pace of construction started on new U.S. homes in April jumped to the strongest level since the onset of the Great Recession, the government reported Tuesday. Construction started on new U.S. homes sprang up 20.2% in April to a seasonally adjusted annual rate of 1.14 million. That’s the biggest monthly percentage gain in more than 24 years and the highest level since November 2007, the U.S. Commerce Department reported. “The April data also strengthen the view that the weakness in February and March was largely transitory and likely caused by harsh weather conditions,” Robert Wetenhall, an analyst with RBC Capital Markets, wrote in a research note. Starts for single-family homes rose 16.7% to an annual rate of 733,000, the fastest pace since early 2008, while starts in buildings with at least five units jumped 31.9% to a pace of 389,000. Economists particularly like to see growth for single-family-home building, which costs more and creates more jobs than building one apartment. That’s why Tuesday’s data on single-family homes were particularly heartening, said David Crowe, chief economist of the National Association of Home Builders. “Home buyers have been reluctant to buy until there is a clear sign that the economy, and more particularly their own future, is more positive. As employment grows and some wages increase and as home equity improves, some of those households break out of their concerns and are beginning to shop for a new home,” Crowe said. Tuesday’s strong report leads to a key question: Was April just a blip? “It may prove difficult to sustain the April pace of 1.135 million units in the near term, as it undoubtedly includes some delayed groundbreaking,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. It’s also worth noting that there was a confidence interval of plus-or-minus 14.4% for April’s overall starts growth of 20.2%, showing that there may have been a much narrower increase (or a much larger increase) in construction than the headline numbers stated.
There are multiple reasons for builders to be hopeful about 2015 sales. Young families and other first-time buyers are tip-toeing into the market, a trend that will support the broader economy and other homeowners who want to buy a new place.
“As always a large confidence interval suggests avoiding euphoric celebration,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics. Still, there were several strong elements to April’s report that signal that the market is healing, though perhaps at a less frenzied pace seen in Tuesday’s data. The annual pace of permits for new construction, a sign of future demand, sprang up 10.1% to 1.14 million, the most since mid2008. The pace of permits for single-family homes rose 3.7% to an annual rate of 666,000, while the pace of permits for apartments rose 20% to 444,000. There are multiple reasons for builders to be hopeful about 2015 sales. Young families and other first-time buyers are tip-toeing into the market, a trend that will support the broader economy and other homeowners who want to buy a new place. Further, applications for mortgages to buy a home recently hit the fastest pace in almost two years. However, major stakeholders in the housing industry still have concerns. Builders have lost some confidence in current sales of single-family homes, signaling wariness over whether families are ready to take the plunge
into the new-home-buying pool, according to a Monday report. Rising home prices and weak income growth aren’t helping home sales. Neither are the strict lending standards that banks have set in the wake of the financial meltdown, as they look to protect themselves from legal and financial risks of making mortgages. Shares of builders fell in recent weeks after companies reported disappointing news about margins, even as orders rose. Analysts are conflicted about the fate of builders. One brokerage recently downgraded shares of seven home builders, reasoning that they typically lag the broader market during the summer. Elsewhere, Morgan Stanley researchers reported that builders may be in a relatively good position this year, thanks to a strengthening economy. Economists polled by MarketWatch had expected an overall April starts rate of 1.03 million, compared with an originally reported rate of 926,000 in March. The government revised March’s starts rate to 944,000. Total housing starts remain far below an average pace of about 1.5 million over the 20 years leading up to the housing bubble’s 2006 peak.
Continued Growth Building Permits Hit Seven-Year High Forbes- Groundbreakings on new homes rose by a dramatic 20.2% in April and permitting hit a seven-year high, the U.S. Commerce Department said Tuesday. The numbers suggest that the ongoing inventory shortage holding back the housing recovery should ease in coming months. Housing starts stood at a seasonally adjusted, annual rate of 1.14 million in April. That pace is 9.2% higher than the rate of 1.04 million in April 2014. Tuesday’s numbers surpassed expectations of economists surveyed by Bloomberg ahead of the release. Single-family housing starts in April rose 16.7% above the level in March, hitting a (seasonally adjusted, annual) rate of 733,000. Starts on buildings with five or more units were up by 32% in April, to a (seasonally adjusted, annual) rate of 389,000.
April also marked the highest level of permitting the nation has seen since June 2008, when the (seasonally adjusted, annual) rate was 1.18 million. The number of building permits issued in April rose 10.1% over March, to a seasonally adjusted annual rate of 1.14 million. That rate was 6.4% higher than a year earlier, when the estimate stood at 1.07 million. Single-family permits were up by 3.7% in April compared to March at a seasonally adjusted, annual estimate of 666,000. Buildings with five units or more hit a permit rate of 444,000 in April, up 20% compared to March. Despite the strong numbers, builder confidence in the market for newly constructed, single-family homes fell two points in May to a level of 54, according to the latest National Association of Home Builders/Wells Fargo Housing Market
Index, released Monday. However, a reading of 50 or higher means that more builders rate conditions are good than poor; the measure has now hit that mark for eleven consecutive months. “Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home,” said David Crowe, NAHB’s chief economist. “On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward.”