Beginning construction of U.S. homes rose more than forecast in June to the fastest rate in almost four years, indicating a brighter outlook for the residential real estate market.
Housing starts rose 6.9 percent last month to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate. Building permits fell, reflecting a drop in applications for apartment construction.
Record-low mortgage rates and cheaper properties are attracting buyers, encouraging builders faced with lean inventories to boost construction. At the same time, limited employment opportunities and competition from distressed properties are challenges for the industry.
“Demand has bottomed out and we expect continued improvement,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who projected a 750,000 pace of housing starts for June. “We’re in a recovery, a very slow one.”
The June pace of home starts was the fastest since October 2008, and estimates in the Bloomberg survey for June housing starts ranged from 710,000 to 800,000. Ground-breaking on new homes in May was revised from a previously reported 708,000 annual pace.
Stock-index futures held earlier losses after the figures, with the contract on the Standard & Poor’s 500 Index expiring in September falling 0.4 percent to 1,353.4 at 8:50 a.m. in New York. The yield on the benchmark 10-year Treasury note dropped to 1.47 percent from 1.51 percent late yesterday.
Federal Reserve Chairman Ben S. Bernanke, in testimony yesterday to Congress, indicated the industry was on the mend.
Growth in construction and “historically low mortgage rates” are among “modest signs” of a housing recovery, even as buyers show concern about personal finances and the broader economy and have difficulty meeting lending standards, Bernanke said.
Construction of single-family houses increased 4.7 percent to a 539,000 rate, the fastest since April 2010, from 515,000 a month earlier, today’s figures showed. Work on apartment buildings and other multifamily units climbed 12.8 percent to an annual rate of 221,000 in June from 196,000 a month earlier.
Two of four regions had an increase in overall starts in June, including a 36.9 percent jump in the West to a 219,000 annual rate, the fastest since April 2008. Starts climbed 22.2 percent in the Northeast.
A report yesterday showed confidence among U.S. homebuilders climbed in July by the most since September 2002. An index of builder sentiment from the National Association of Home Builders/Wells Fargo increased by 6 points in July to 35.
One reason for optimism is falling interest rates have helped make homes more affordable. The average 30-year, fixed mortgage rate declined to 3.56 percent last week, the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.
“Evidence from the field suggests that the ‘for sale’ housing market has, in fact, bottomed and that we have commenced a slow and steady recovery process,” Stuart Miller, chief executive officer at Lennar Corp. (LEN), the third-largest U.S. homebuilder by revenue, said in a June 27 statement.
Signs the housing market is improving has boosted share prices. The Standard & Poor’s Supercomposite Homebuilding Index, which includes D.R. Horton Inc. and PulteGroup Inc., has climbed 52 percent this year, outpacing an 8.4 percent gain in the broader S&P 500 Index.
“We are seeing different improvements in different parts of the country, but we’re seeing improvement everywhere,” Larry Nicholson, president and chief executive officer at West Lake Village, California-based builder Ryland Group Inc. (RYL), said on a June 13 conference call. “So that’s the key there.”
Home prices are stabilizing and starting to increase. The S&P/Case-Shiller index of property values adjusted for seasonal variations rose 0.7 percent in April, the third straight gain. Stronger home sales will bolster producers of building materials.
“As we start to move prices up, it starts to draw people off the sidelines who are potential homebuyers, people that are at the age they should be buying a house, but they’ve been concerned about a further decline in prices,” Daniel Fulton, chairman and chief executive officer of forest-products company Weyerhaeuser Co. (WY), said at a June 13 conference. “So we’re starting to see some increase in activity.”
At the same time, foreclosures remain a hurdle for the market. Initial notices, the start of the process, jumped 6 percent in the second quarter from a year earlier, the first annual increase since 2009, according to RealtyTrac Inc., a real estate data provider in Irvine, California.
The increase may reflect February’s $25 billion settlement among 49 state attorneys general and the five major mortgage servicers for improper and fraudulent paperwork related to foreclosures, according to a Bloomberg Government study. The pace of foreclosures had slowed for at least a year while the settlement was being resolved.