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Housing Starts in U.S. Surge on Demand for Multifamily Units

In Hot Stuff on April 16, 2013 at 12:33 PM

Housing Starts in U.S. Surge on Demand for Multifamily Units

New-home construction in the U.S. jumped more than forecast in March as multifamily projects climbed to the highest level in more than seven years.

Starts climbed 7 percent to a 1.04 million annual rate, the most since June 2008, after a revised 968,000 pace in February that was larger than previously reported, Commerce Department figures showed today in Washington. The median estimate of 80 economists surveyed by Bloomberg called for 930,000. Building permits, a proxy for future construction, fell.

Builders are rushing to satisfy growing demand for rental units, propelling the jump in construction that will help support economic growth. Work began on fewer single-family houses last month, adding to evidence that part of the market is pausing.

“Whether it’s driven by demand from homebuyers or renters, it doesn’t really matter because it’s roofs over peoples’ heads,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, who had the highest starts forecast in the Bloomberg survey. “There’s still a lot of room for improvement in housing, both for activity and for prices. This is critical for the U.S. economy.”

The cost of living in the U.S. declined in March for the first time in four months as cheaper gasoline and clothing kept inflation in check, another report today showed. The consumer- price index dropped 0.2 percent after a 0.7 percent jump in February, according to data from the Labor Department.

Shares Climb

Stock-index futures extended earlier gains after the reports as corporate earnings topped estimates and commodity producers advanced. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.9 percent to 1,557.3 at 8:49 a.m. in New York

Estimates for housing starts in the Bloomberg survey ranged from 885,000 to 985,000 following a February pace that was first reported as 917,000.

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Building permits fell 3.9 percent in March to a 902,000 annualized rate, reversing the prior month’s gain. They were projected to rise to 942,000, within a range of 905,000 to 990,000.

Three of four U.S. regions showed a gain in starts last month, led by a 10.9 percent increase in the South.

Construction of single-family houses fell 4.8 percent in March to a 619,000 rate, today’s report showed.

Multifamily Starts

Work on multifamily homes, such as apartment buildings, jumped 31 percent to an annual rate of 417,000, the most since January 2006.

Builders began work on 780,000 homes in 2012, a 28 percent gain from the prior year and the third straight annual increase. Even with the improvements, starts are short of the 2.1 million in 2005 at the peak of the boom, which was a three-decade high.

“The momentum from the housing rebound during 2012 has remained strong in the early months of 2013,” John Stumpf, chief executive officer at Wells Fargo & Co. (WFC), said on an April 12 earnings call. San Francisco-based Wells Fargo funded one in four U.S. mortgages in 2012. “Our near-term outlook is for steady gains in home sales, building activity, and price appreciation. Housing affordability remains excellent.”

Other reports have suggested a pause in the housing market. The National Association of Home Builders/Wells Fargo index of confidence fell in April to the lowest since October, according to data released yesterday. Builders surveyed said rising costs for materials and financing restrictions held them back. At the same time, residential construction firms were more optimistic about future sales than at any time in six years.

Employment Cools

The U.S. labor market cooled in March, adding the fewest workers to payrolls in nine months and weighing on home-buying prospects. Still, builders in the U.S. will probably be busy later this year restoring the nation’s depleted inventory of newly-constructed properties.

The number of new single-family homes on the market fell in July and August to 143,000, the lowest level in Commerce Department records that began in 1963. In February, there were 152,000 new homes for sale, below any month prior to the 2007- 2009 recession.

Shoring up demand for new properties, low borrowing costs have made buying a home more affordable. The average rate on a 30-year fixed mortgage fell to 3.43 percent in the week ended April 11 from 3.54 percent in the prior period, according to Freddie Mac. The rate reached a record-low 3.31 percent in November.

Boosting Growth

A rebound in home construction will aid the expansion. In the past six months, payrolls at construction companies have grown by 169,000 workers, according to Labor Department data. Residential investment bolstered U.S. gross domestic product by 0.27 percentage point in 2012, the first addition since 2005.

The homebuilding industry may generate as many as 500,000 jobs in 2013 and 700,000 in 2014, including related services, according to Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Residential investment could boost economic growth by 0.5 percentage point this year, Michael Feroli, the New York-based chief U.S. economist at JPMorgan Chase & Co., estimated in an April 10 note to clients.

Housing’s positive ripples can be seen at businesses such as Hooker Furniture Corp. (HOFT), based in Martinsville, Virginia.

“We’re encouraged by the sustained improvement in housing sales, new-home construction, rising housing prices, reduced inventories, historically low mortgage rates, and the best housing affordability in years, all of which combined to create a positive environment for our company and our industry ” Paul Toms, chairman and chief executive officer, said during an April 15 earnings call.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13

To contact the editor responsible for this story: Christopher Wellisz at cwellisz

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