Wednesday 18 December 2013

U.S. Home Building Hits Highest Level in Nearly 6 Years

Posted by at 3:58 PM

WASHINGTON—A key gauge of home construction surged in November to its highest level in nearly six years, the latest sign of renewed momentum in the sector's recovery. U.S. housing starts rose 22.7% from October to a seasonally adjusted annual rate of 1,091,000 in November, the Commerce Department said Wednesday. That was higher than the 952,000 forecast by economists and brought the average pace of starts for the past three months to 951,000. Details of the report showed broad strength for housing. Starts for single-family homes, a bigger and more stable segment of the market, also rose to their highest level in nearly six years. November building permits, an indicator of future construction, fell slightly to the still-elevated level of 1,007,000. Permits had jumped 6.7% in October.

The report showed home building returning to the brisk pace seen early this year, before the sector's recovery took a hit from rising interest rates. Builders broke ground on an average 869,000 homes between June and August. "The recovery trend has resumed," said Alan Levenson, chief economist at T. Rowe Price Associates. That is good news for the wider economy, which benefits from a stronger housing sector through job creation and demand for a broad array of building materials and household goods. The data prompted several upgrades to estimates of economic growth in the final three months of the year. Barclays raised its forecast to 2.3% from 2.2%, while Morgan Stanley upped its estimate to 2% from 1.9%. The uptick in housing could also reassure Federal Reserve officials that the recovery is gaining strength as they conclude a two-day meeting Wednesday, where they'll decide whether to start reining in their $85 billion-a-month bond-buying program. They have said they could do so in the "coming months."

"This is a strong report on housing activity…that adds to the case for a tapering announcement from the Fed today," economists at RDQ Economics LLC said in a note to clients. The Fed sparked a rapid run-up in mortgage rates this spring when it signaled it could start reining in its $85 billion-a-month bond-buying program. Rates leveled off somewhat when the Fed left its decision on hold through the summer and fall, though they have started to edge higher again in recent weeks. A 30-year fixed-rate mortgage averaged 4.42% last week, nearly a percentage point higher than where it stood in May, according to Freddie Mac.

More recent data, however, show the housing industry adjusting to the rise in mortgage rates, which remain at historically low levels. Steady job-market gains, as well as rising stock and housing wealth, is bolstering the purchasing power and confidence levels of prospective buyers.

A Tuesday report from the National Association of Home Builders said members of the industry trade group are seeing a surge in demand from buyers in December. The group's confidence gauge rose to 58 from 54 last month. Levels over 50 indicate expansion for the industry. Some economists cautioned that November's strength in home building might not carry into coming months. Ian Shepherdson, an economist at Pantheon Macroeconomics, noted that permits for single-family homes have shown a modest upward trend in the last couple of months. Housing starts "are very erratic from month-to-month and we think a clear correction in December is a good bet," he said.

Original article Wall street Journal