Groundbreaking for single-family homes climbed in October and permits for all future projects reached a six-year high to signal construction will add to economic growth in early 2015.
Starts of one-family houses advanced 4.2% to a 696,000 annualized rate last month, the most since November 2013, Commerce Department figures showed today in Washington. A drop in the construction of apartments pushed total starts down 2.8% to a 1.01 million pace.
Builders were granted 4.8% more permits last month to begin construction as faster job growth this year and cheaper borrowing costs help revive residential real estate. Companies including Hovnanian Enterprises Inc. are counting on faster wage growth to help ease the burden of tighter lending standards and provide a bigger tailwind for industry.
“Conditions in the housing market are at least stable, and on the margin they appear to be improving a bit,” said Ryan Wang, an economist with HSBC Securities USA Inc. in New York and the top forecaster of building permits over the past two years, according to data compiled by Bloomberg. “We should expect continued gradual growth heading into next year.”
Authorizations to begin work on new housing projects increased to a 1.08 million annualized rate, reflecting increasing demand for single-family and multifamily dwellings. They were projected to advance to 1.04 million, according to a Bloomberg survey of economists.
More homes were under construction in October than at any time since the end of 2008, today’s figures showed.
Sustained growth in the housing market has encouraged homeowners to spend on renovations, sales figures from Lowe’s Cos. show. The second-largest U.S. home-improvement retailer reported today that receipts climbed 5.6% in the three months through Oct. 31 from a year earlier. Profit at the Mooresville, N.C.-based company increased 17%.
Stocks fell after benchmark gauges extended records yesterday. The Standard Poor’s 500 Index dropped 0.4% to 2,043.58 at 10:16 a.m. in New York.
The median estimate of 82 economists surveyed by Bloomberg called for starts to increase to a 1.03 million rate. Estimates ranged from 979,000 to 1.1 million. The pace of starts averaged 930,000 last year.
Work on multifamily projects such as condominiums and apartments, which is often volatile, dropped 15.4% to an annual rate of 313,000.
Hovnanian, based in Red Bank, N.J., slowly is beginning to build on some of its 6,000 undeveloped lots. Prices will need to appreciate more before it breaks ground on most of them, Chief Financial Officer Larry Sorsby said.
“We need to have some home price appreciation before we’re going to be willing to put the streets in and build houses,” Sorsby said at a Nov. 13 conference.
“I think we have a ways to go before the economy is hitting on all four cylinders strong enough to really power forward more demand for housing,” Sorsby said. “I think there’s a lot of underemployed people. They may have a job, but it’s not a great job, and it doesn’t give them enough income to go out and buy a home.”
The housing market has been supported by borrowing costs near historic lows. The average 30-year, fixed-rate mortgage was 4.01% in the week ended Nov. 13, down from 4.35% a year earlier, according to Freddie Mac.
Today’s figures follow a report yesterday showing builder confidence rebounded this month. The National Association of Home Builders/Wells Fargo sentiment gauge advanced to 58, matching the second-highest level since 2005, from 54 in October.
While the market recovers, demand is outpacing construction. The U.S. requires between 1.6 million and 1.9 million new units a year just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.