New housing starts data came out of the US this week with a powerful bang. It is important to note that the highest increase in new home building continues to be in the multi-family sector, but for April even single-family building is up more than 10 per cent on a seasonally-adjusted basis.
Other indicators continue troubling.
First off, US housing starts jumped to their highest level in nearly 7-1/2 years in April and building permits soared.
The strength in housing is in stark contrast with weakness in consumption and business spending, which prompted economists to lower their 2Q growth estimates and raised doubts that the Federal Reserve will raise interest rates before the end of 2015.
Groundbreaking surged 20.2 per cent to a seasonally adjusted annual pace of 1.14 million units, the highest since November 2007, the Commerce Department said Tuesday. The per cent increase was the biggest since February 1991. Adding to the report’s strong tenor, March’s starts were sharply revised higher. Groundbreaking for single-family homes, which accounts for the largest share of the market, hit its highest level since January 2008.
While April’s sharp acceleration in starts likely reflected pent-up demand during a harsh winter, a 10.1 per cent jump in permits for future home construction to a near seven-year high 1.14 million-unit rate indicated the rebound was sustainable.
Single-family homes groundbreaking gained 16.7 per cent. Starts for the multi-family homes segment increased 27.2 per cent. Single-family permits increased 3.7 per cent last month. Multi-family permits surged 20.5 per cent.
Home building is being boosted by solid gains in household formation as more young adults find employment and very tight housing inventories.
Last month, groundbreaking vaulted 85.9 per cent in the Northeast. There were also outsized gains in the Midwest and the West. Though starts fell 1.8 per cent in the South, where most of the home building takes place, building permits were up 9.9 per cent.
The US housing market may help the economy recover from a slow 1Q.
Housing will be a “stand-out growth contributor,” Ted Wieseman, an economist at Morgan Stanley, wrote in a research note Tuesday.
Residential investment has been underperforming for years. But key factors are improving: Young families and other first-time buyers are tip-toeing into the housing market, the jobs environment is steadying, and there’s rising demand and ability among borrowers to take out a mortgage.
“Household formations appear to be showing a solid underlying pickup to a pace more in line with the demographic trend around 1 million per year based on growth in the adult population after a persistently sluggish post-recession trend closer to 500,000,” Wieseman wrote, via MarketWatch.
In 1Q, fixed residential investment made up about 3.1 per cent of real US gross domestic product, below an average of more than 5 per cent over the past five decades.
The US economy grew just 0.2 per cent in 1Q, according to the Commerce Department.
Rising house prices in the face of a falling homeownership rate are a show of strength for the US housing market, according to Pierre Lapointe, Pavilion Global Markets Ltd’s head of global strategy and research.
The BloombergBusiness chart on Page 8 shows the contrast by comparing the median home-resale price, based on a 12-month moving average, with the percentage of American households owning their homes. The data are compiled by the National Association of Realtors and the Commerce Department, respectively.
For the three years ended in March, prices for existing homes climbed 28 per cent to an average of US$209,900, the highest since May 2008. Homeownership fell 1.7 percentage points in the period to 63.7 per cent, matching the lowest level since 1986.
Meanwhile, contract closings on previously owned properties unexpectedly dropped 3.3 per cent to a 5.04 million annualized rate in April after a 5.21 million pace that was the strongest in almost two years, figures from the National Association of Realtors showed Thursday. Prices jumped the most since the start of 2014 as the inventory of houses on the market declined from the same time last year.
US Real Estate
A limited number of homes for sale and higher selling prices are making for one painstaking US housing recovery.
The rebound in residential real estate has been stop-and-go as small wage gains and lingering concerns about taking on more debt offset the benefits of historically low mortgage rates. In order to strengthen, the economy needs more pronounced momentum from housing as manufacturing remains sluggish.
A series of factory reports Thursday indicated the industry remains tepid this month against a backdrop of weaker global growth and a strong dollar. The Markit Economics preliminary May manufacturing index dropped to the lowest level since January 2014. The Federal Reserve Bank of Kansas City’s gauge showed a third month of contraction and is the weakest since April 2009, a product of the slowdown in US oil exploration.
Existing home sales, tabulated when a purchase contract closes, account for more than 90 per cent of the residential market. New-home purchases, which make up about 8 per cent and are tabulated when contracts are signed, are considered