Housing Starts Top Forecasts, Led by One-Family Homes

New-home construction in the U.S. rebounded in November, led by gains in single-family dwellings that signal the residential real estate industry will continue to support growth in the world’s largest economy.

Housing starts climbed 10.5% to a 1.17 million annualized rate from a 1.06 million pace in October, figures from the Commerce Department showed Dec. 16. The median estimate of 81 economists surveyed by Bloomberg News was for a 1.13 million rate. Work began on the most stand-alone houses since January 2008, and permits for similar projects reached an eight-year high.

Supported by growing payrolls and a low level of layoffs, demand for housing has strengthened over the past year as more Americans now have the means and the confidence to invest in a home. Acceleration in wage growth will be needed to underpin further momentum in the housing industry.

“Demand for housing is still good,” said Stephen Stanley, chief economist at Amherst Pierpont Securities in New York and one of the best forecasters of housing starts over the past two years, according to data compiled by Bloomberg. “More people are working and they’re starting to get paid a little more, too. Balance sheets are very clean, and people are feeling a little better about the overall environment.”

Estimates for housing starts in the Bloomberg survey ranged from 1 million to 1.2 million.

Building permits, a sign of future construction, increased 11% in November to a 1.29 million annualized rate, the most since June. They were projected to rise to 1.15 million.

Construction of single-family houses increased to a 768,000 rate from 714,000 in October, and the report showed gains may continue. Building applications for single-family projects rose to a 723,000 pace, the most since December 2007.

Single-family dwellings make up the biggest part of the market and are subject to less volatility.

Work on multifamily homes, such as apartment buildings, rose 16.4% to a 405,000 rate. Data on these projects, which have led housing starts in recent years, can be volatile.

Two of four regions had an increase in starts in November, paced by an 21.3% jump in the South, according to the report.

Fed officials on Dec. 16 announced a quarter-point increase in interest rates, the central bank's first action on them since 2006. Most economists surveyed by Bloomberg see a subsequent increase in the 30-year mortgage rate next year, a development that could contain the pace of improvement in the industry.

A pickup in wage growth will be needed to support housing in its next leg of recovery as steady job growth has done much of the heavy lifting thus far.

The correlation between U.S. personal income and new, privately owned housing starts is 0.91 over the period since the recovery started in June 2009, according to Bloomberg calculations. A reading of 1 means the items being compared move in lock-step, while zero would mean they move in opposite directions.

“The effect of personal income on housing starts has grown following the end of the Great Recession in late 2009 as the current housing market recovers,” Bloomberg Intelligence analyst Erich Marriott wrote in a Dec. 8 report.