U.S. new home construction rose in October by more than forecast to the fastest pace since February, highlighting a robust residential real estate market that’s helping spur the economy.
Residential starts increased 4.9% to a 1.53 million annualized rate from an upwardly revised 1.46 million a month earlier, according to a government report released Wednesday. The median forecast in a Bloomberg survey of economists called for a 1.46 million pace.
Record-low mortgage rates and the rush to relocate to larger homes in suburbs that double as new workplaces during the pandemic have depleted housing inventory, helping explain why builder confidence stands at an all-time high. Starts of single-family homes jumped to the best pace since 2007 and the number of units authorized but not yet started remained elevated, suggesting construction will remain strong in coming months.
“Unless demand suddenly sinks, builders will be playing catch-up for the foreseeable future,” Stephen Stanley, chief economist at Amherst Pierpont Securities, wrote in a note. “Still, the implication for GDP is quite positive, as the housing sector is likely to post an explosive gain in the fourth quarter and continue to rise next year.”
Construction of one-family homes climbed 6.4% to a 1.18 million rate in October, accounting for 77% of total homebuilding. Multifamily starts, a category that tends to be volatile and includes apartment buildings and condominiums, were unchanged. Applications to build, a proxy for future construction, also held steady, though permits for single-family houses rose to a 1.12 million pace that was the highest since 2007.
Housing momentum still faces risks, including elevated home prices that could weigh on affordability and sideline some potential buyers. Meanwhile, the deadlocked stimulus talks in Congress can also hurt the lower income group’s purchasing power, though they are also less likely to buy new houses even before the economic downtown, according to a note by Bloomberg economists.
The government’s report showed starts rose in three of the four regions, led by the South, the largest region, where one-family starts climbed 6.7% to the best pace in nearly 14 years.
The number of one-family projects authorized but not yet started held close to the the highest level since early 2008, according to the report, which is published jointly by the Census Bureau and the Department of Housing and Urban Development.
The recent strength in residential sales has coincided with the rising home improvement spending. Spending at furniture and home furnishing outlets increased 5.2% in October from the prior year, the Commerce Department’s retail sales report showed Tuesday. Home-improvement retailer Home Depot Inc.’s same-store sales were up more than 20% in two consecutive quarters compared with a year ago.
--With assistance from Chris Middleton.
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