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Housing Accelerates in Boost to U.S. Expansion: Economy

By Michelle Jamrisko
January 17, 2013 4:17 PM EST 4 Comments
Housing Starts in U.S. Jump More Than Forecast to Four-Year High
Housing Starts in U.S. Jump More Than Forecast to Four-Year High

The rebound in U.S. homebuilding accelerated in December, capping the best year for the industry since 2008 and adding to signs residential real estate is contributing to economic growth.

Housing starts climbed 12.1 percent last month to a 954,000 annual rate, exceeding all forecasts in a Bloomberg survey of economists, according to Commerce Department data today in Washington. Other reports showed fewer Americans applied for jobless benefits last week and manufacturing in the Philadelphia region unexpectedly contracted in January.

Spurred by record-low mortgage rates, home construction will probably keep making headway in 2013 as it recovers from the worst slump since the Great Depression. Consumers, buttressed by an improving job market, rising home prices and lower fuel costs, may also be able to move ahead even as the debate over the federal budget heats up and taxes cut paychecks.

“Housing clearly continues to be one of the bright spots in an otherwise gloomy and sluggish economic-growth story,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a subsidiary of the largest U.S. mortgage lender. “On the labor market side of things, we continue to get overall positive momentum.”

The number of Americans filing first-time claims for unemployment insurance payments fell last week to the lowest level in five years, pointing to further improvement in the labor market, figures from the Labor Department also showed.

Fewer Claims

Applications for jobless benefits decreased by 37,000 to 335,000 in the week ended Jan. 12, the fewest since January 2008. Economists forecast 369,000 claims, according to the median estimate in a Bloomberg survey. A spokesman for the agency said the drop may reflect the difficulty the government has in adjusting the data at the beginning of quarters and following the holidays when seasonal workers are let go.

Stocks rallied, sending the Standard & Poor’s 500 Index to a five-year high, on the better-than-forecast housing and claims data. The S&P 500 climbed 0.6 percent to 1,480.94 at the close in New York.

Last month’s jump brought housing starts to the highest level since June 2008, the Commerce Department report showed.

For all of last year, work began on 780,000 houses, up from 608,800 in 2011 and also the most since 2008. The 28.1 percent jump from 2011 was the biggest annual gain since 1983.

The median estimate of 84 economists surveyed by Bloomberg called for an increase to 890,000 starts. Projections ranged from 850,000 to 930,000. The prior month was revised down to an 851,000 pace from a previously reported 861,000 rate.

Permits Stable

Building permits, a proxy for future construction, climbed less than starts, indicating the industry may also have gotten a lift from unseasonably warm weather, a sign that the industry will take a breather in coming months. The number of authorizations issued climbed 0.3 percent in December to a 903,000 annual rate, the most since July 2008, from a 900,000 pace in November.

Last month was the second-warmest December in U.S. records going back to 1958, according to the National Oceanic and Atmospheric Administration.

“Starts may have gotten an assist from the unseasonably mild December weather,” Daniel Silver, an economist at JPMorgan Chase & Co. in New York, said in a note to clients. “But the housing data had clearly been improving prior to the unusual temperatures and most other housing indicators have remained upbeat lately. Our forecast still looks for solid growth in residential investment throughout 2013, though levels of activity should remain low by historic standards.”

Housing Boom

Housing starts remain short of the 2.07 million in 2005 at the peak of the boom, which was three-decade high. They averaged 1.74 million a year from 2000 through 2004.

All four regions of the country showed a gain in starts last month, led by a 24.7 percent surge in the Midwest.

Construction of single-family houses climbed 8.1 percent in December from the prior month, to the highest level since June 2008. Work on multifamily homes jumped 20.3 percent.

Confidence among homebuilders held in January at the highest level since April 2006, the National Association of Home Builders/Wells Fargo reported yesterday. The group’s gauge of buyer traffic also climbed to a more than six-year high.

Lennar Corp. (LEN), the largest U.S. homebuilder by market value, is leveraging rental demand by pledging to construct $1 billion of multifamily properties in an attempt to diversify its offerings.

Rental Units

The Miami-based company plans to start building 3,000 apartments at a development cost of $560 million this year, Chief Executive Officer Stuart Miller said earlier this week on a conference call. The first projects are a $36 million, 316- unit community in Jacksonville, Florida, in partnership with Carlyle Group LP, and a $32 million, 264-unit community northeast of Atlanta.

“As demand for new-sale housing continues to increase from historically low levels, rental demand has continued to grow, fueled by expanding household formations, credit and down payment-challenged homebuyers and steadily improving employment,” Miller said on the call.

Cheaper borrowing costs are attracting home buyers who have adequate credit. The average rate on a 30-year fixed purchase loan was 3.40 percent in the week ended Jan. 10, compared to 3.89 percent a year ago, according to McLean, Virginia-based Freddie Mac.

Job creation held steady in December, with the 155,000 workers added to payrolls in line with the year’s average monthly growth rate of 153,000 jobs, Labor Department data show. That progress brought unemployment to 7.8 percent at the end of 2013, down from 8.3 percent at the start of the year.

Payroll Tax

A hurdle for the labor market may come from a higher payroll tax that damps consumers’ spending power. As part of its budget agreement on Jan. 1, Congress agreed to let the tax, used to pay for Social Security benefits, return to its 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.

Americans’ economic outlook deteriorated in January to a three-month low as paychecks began reflecting the higher taxes, another report today showed.

The gap between positive and negative expectations widened to minus 7 this month from zero in December as the share saying the economy is improving dropped to the lowest since September, according to the Bloomberg Consumer Comfort Index. The weekly measure declined to minus 35.5, the weakest since Oct. 7, from minus 34.4 in the prior period.

Regional Manufacturing

Also today, the Federal Reserve Bank of Philadelphia’s general economic index dropped to minus 5.8 from 4.6 in December. Readings lower than zero signal manufacturing in the area covering eastern Pennsylvania, southern New Jersey and Delaware is contracting.

The report follows New York Fed data released earlier this week showing factory activity shrank for a sixth straight month and raises the risk manufacturing, once a pillar of the recovery, will again weaken in early 2013. Looming changes in federal spending and stagnant prices give companies little reason to expand inventories, which may hurt producers.

“Manufacturing is going to be touch-and-go over the next few months until we get some fiscal clarity,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the only economist in the Bloomberg survey to project the index would turn negative. The New York and Philadelphia surveys are “a sign that the fiscal deal struck on New Year’s was a good first step, but it didn’t reduce the uncertainty.”

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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