Permits Rise to Six-Year High as Housing Starts Decrease
Residential-construction permits in the U.S. climbed in October to a six-year high, pointing to a pickup in homebuilding after activity cooled because of a slowdown in multifamily projects.
Groundbreakings for single-family homes, condominiums and apartments fell 2.8% to a 1.01 million annualized rate following September’s 1.04 million pace, which was stronger than previously reported, the Commerce Department reported Nov. 19 in Washington. Permits for future projects rose to the highest level since June 2008.
Construction began last month on the most single-family homes in a year, indicating a strengthening job market and cheaper borrowing costs are helping revive residential real estate. Builders including Hovnanian Enterprises Inc. and Ryland Group Inc. remain challenged by slow wage growth and tight credit, which have put homeownership out of reach for some Americans.
“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. “I think we should expect continued gradual growth heading into next year.” Wang is the top forecaster of building permits over the past two years, according to data compiled by Bloomberg.
The median estimate of 82 economists surveyed by Bloomberg called for an increase to a 1.03 million rate. Estimates ranged from 979,000 to 1.1 million after a previously reported 1.02 million in September. The pace of starts averaged 930,000 last year.
Applications for building permits increased 4.8% to a 1.08 million annualized rate, reflecting increasing demand for single-family and multifamily projects. They were projected to advance to 1.04 million, according to the Bloomberg survey.
Work on single-family properties rose 4.2% to a 696,000 rate in October, the most since November 2013, from 668,000 a month earlier, the Commerce Department said. Construction of multifamily projects such as condominiums and apartments, which is often volatile, dropped 15.4 % to an annual rate of 313,000.
Three of four regions showed a decrease in groundbreaking last month, led by an 18.5% drop in the Midwest. Starts declined 16.4% in the Northeast, 10.9% in the West and rose 10.1 % in the South.
Hovnanian, based in Red Bank, New Jersey, 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 figures follow a report 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.
