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US Housing Market Forecasted To Stay Strong

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Housing Rebound Likely to Endure in U.S. Through Fed Liftoff By Bloomberg

The rebound in U.S. home construction picked up in July as builders broke ground on more projects than at any time in almost eight years.

Residential starts rose 0.2 percent to a 1.21 million annualized rate, the most since October 2007, from a 1.2 million pace the prior month that was higher than previously estimated, Commerce Department data showed Tuesday in Washington. The gain was led by single-family houses, the mainstay of the market.

While a drop in building permits indicates the industry's progress will be measured, its recovery from the recession is set on sound foundations, including an improving job market and growing household formations. That signals its momentum will probably continue into 2016, and won't be derailed by rising borrowing costs, given the prospect that Federal Reserve policy makers will lift interest rates only gradually.

"Housing is in a real sweet spot, moving higher but not dangerously so," said Eric Green, head of U.S. economic research at TD Securities in New York, who projected a 1.2 million pace. "The housing market will be strengthening over the second half. The Fed raising rates will not change that."

Stocks fell as concern over slowing growth in China and other developing markets overshadowed the housing data. The Standard & Poor's 500 Index fell 0.3 percent to 2,096.92 at the close in New York. The S&P Supercomposite Homebuilding Index climbed 2.1 percent.

Survey Results

Housing starts exceeded the median forecast of 77 economists surveyed by Bloomberg that projected 1.18 million. Estimates ranged from 951,000 to 1.28 million. The June figure was previously reported as a 1.17 million pace.

Permits, a proxy for future construction, decreased to a 1.12 million annualized rate from 1.34 million in June. The 16.3 percent drop was the biggest since July 2008, and followed a 28.8 percent surge over the previous three months.

Authorizations have see-sawed, caused in part by the potential expiration of a tax break in New York, which has since been renewed. Permits in the Northeast plunged 60 percent in July after falling 1.4 percent the prior month. They skyrocketed a combined 123 percent in April and May as developers tried to get ahead of the tax change.

"It is too soon to judge permits in light of the volatility associated with the New York City tax break, but the fact their three-month moving average held steady is a consolation," Bloomberg Intelligence economists Josh Wright and Carl Riccadonna, wrote in a research note.

All Regions

Still, permits declined in all four regions of the country, indicating it will be difficult to sustain the July strength in housing starts over the next month or two.

The increase in starts last month was led by a 12.8 percent gain in construction of single-family houses, taking them to a 782,000 rate, the most since December 2007.

Work on multifamily homes, such as condominiums and apartment buildings, fell 17 percent to an annual rate of 424,000. Data on these projects, which have led housing starts in recent years, can be volatile.

Two of four regions showed increases in starts last month, led by a 20 percent gain in the Midwest, the report showed.

Homebuilder confidence climbed in August to the highest level since November 2005, figures showed on Monday. The National Association of Home Builders/Wells Fargo sentiment index rose to 61 from 60 the prior two months. Readings greater than 50 mean more respondents report good market conditions. Measures of current sales and buyer traffic climbed.

Builder Earnings

D.R. Horton Inc., the largest U.S. homebuilder by revenue, in July reported fiscal third-quarter earnings that beat analysts' estimates as the company sold more properties at higher values.

Home Depot Inc., the world's largest home-improvement retailer, boosted its earnings and sales forecasts for the year on Tuesday as rising home prices encourage Americans to fix up their properties.

The labor market remains a mainstay for the housing rebound. Payrolls grew in July by 215,000 workers following a 231,000 gain in the prior month, and the jobless rate held at a seven-year low of 5.3 percent.

In the longer term, housing demand may also get help as young adults, who are delaying homeownership, begin to purchase entry-level properties.

Prospective buyers continue to face relatively low borrowing costs. The average 30-year, fixed-rate mortgage was 3.94 percent in the week ended Aug. 13, below last year's high of 4.53 percent reached in early January 2014, according to data from Freddie Mac in McLean, Virginia.

Fed Outlook

Fed policy makers, who last raised the benchmark rate in 2006, have held it close to zero since 2008 as they tried to stimulate economic growth. Seventy-seven percent of forecasters in a Bloomberg survey taken Aug. 7-12 said the central bank will raise its main policy rate next month.

Residential investment made a 0.2 percentage-point contribution to economic growth in the second quarter, when the economy grew at a 2.3 percent annualized rate.


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