WASHINGTON -- New-home construction in the U.S. climbed in July, reflecting a rebound in multifamily projects that overshadowed a slowdown in single-family properties.
Housing starts climbed 5.9 percent to an 896,000 annualized rate from a revised 846,000 pace in June that was higher than previously reported, figures from the Commerce Department showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg was for a 900,000 rate. Multifamily construction surged 26 percent, while work began on 2.2 percent fewer single-family homes.
Builders are contending with a limited supply of available land as well as rising interest rates that are marking up the cost of homeownership versus renting. Further gains in employment and increases in home prices are needed to help sustain demand in an industry that has supported growth in the world’s biggest economy.
“There does seem to be a little bit of plateauing perhaps in construction activity right now,” Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Conn., said before the report. “Housing starts have rebounded pretty sharply from their lows, but the levels are still far below anything I would consider normal or healthy.”
Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in September climbed 0.2 percent to 1,659.4 at 8:33 a.m. in New York.
Estimates for housing starts in the Bloomberg survey ranged from 815,000 to 1.05 million following a June pace that was first reported as 836,000.
Building permits climbed 2.7 percent in July to a 943,000 annualized rate, again paced by a jump in multifamily. They were projected to rise to 945,000 within a range of 885,000 to 1 million, after a previously reported reading of 918,000.
Building applications for single-family projects exceeded the number of starts, signaling some scope for a pickup in construction in coming months.
Construction of single-family houses decreased to a 591,000 rate, the fewest since November, today’s report showed. Work on multifamily homes, such as apartment buildings, climbed to a 305,000 rate. Work on these projects is often volatile, with last month’s surge following a 24.8 percent plunge in June.
Three of four regions had an increase in starts last month, led by a 40.2 percent jump in the Northeast, according to the report. Construction dropped 7 percent in the South.
On a year-to-year basis, total housing starts were up 20.9 percent in July.
Gains in the housing industry over have extended beyond builders to boost lenders and suppliers of construction materials as well. Even with the improvements, starts are short of the 2.1 million on 2005 at the height of the boom, which was a three-decade high.
Around the peak, housing made up 21 percent of Martin Marietta Materials Inc.’s business, contrasting with the 8 percent it composed last year, CEO Howard Nye said at the Jefferies Global Industrials Conference on August 13. The company, which provides crushed stone, sand and gravel for construction, expects starts to increase to an annual pace of 1.5 million in “a couple of years.”
“So as we climb our way back to 1.5 million, as we all celebrate that and feel like that’ll be good for our business, and it will, that’s not necessarily putting a lot of gas in that tank beyond something that we should be very much accustomed to over time,” Nye said.
The National Association of Home Builders/Wells Fargo confidence index rose in August to the highest level since 2005 as demand for new homes supports the market, a report yesterday showed.
Employers added the fewest workers to payrolls in four months in July even as the U.S. jobless rate fell, a sign of uneven labor-market gains in the world’s biggest economy, Labor Department data showed earlier this month.
Builders have been hesitant to add employees since the recession, which limits the pace at which the industry can grow, Pierpont’s Stanley said. Payrolls at construction companies have climbed by 325,000 workers since the start of 2011, compared with the 2.2 million employees they cut in the four years ended 2010, according to Labor Department data.
Even so, homebuilders will probably benefit from a constrained supply of existing homes and borrowing costs that are historically low even after a run-up that began in May. The average rate on a 30-year fixed mortgage was at 4.40 percent in the week ended August 8, compared with a record-low 3.31 percent reached in November, according to data from Freddie Mac.
Sustained improvement in the U.S. labor market and rising home prices may help prospective buyers feel more confident, extending gains through the second half of the year. Companies such as Tri Pointe Homes Inc., which designs and constructs single-family homes throughout California and Colorado, are already seeing the difference.
“Jobs have proven to be the most fundamental driver along with household formations and consumer confidence,” Douglas Bauer, CEO, said in Aug. 13 conference call to discuss second-quarter earnings, which rose more than the average analyst estimate. “Our company has continued to experience strong traffic in buyer demand in all product segments and markets as rates have moved modestly higher.”