U.S. home building climbs in September

Multifamily projects lead 6.3% gain

WASHINGTON — Work began on more U.S. homes in September, indicating gains in residential construction will help bolster economic growth.

Housing starts climbed 6.3 percent to a 1.02 million annualized rate from a 957,000 pace in August, the Commerce Department said. The reading was in line with the median estimate of economists surveyed by Bloomberg that projected 1 million. Work increased on multifamily and single-family homes.

The drop in mortgage rates in recent weeks will probably underpin sales, giving builders reason to take on more projects, analysts said.

“The trend in starts continues to be up,” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio. “As the job market’s gotten better, as the mortgage rates have remained low and in the

last week gone even lower, the underlying demand for single-family homes has improved.”

Rate estimates for September starts in the Bloomberg survey of 76 economists ranged from 955,000 to 1.1 million after a previously reported 956,000 rate in August.

Permits for future projects also increased, rising 1.5 percent to a 1.02 million annualized pace and pointing to a sustained pace of construction. They were projected to climb to 1.03 million, according to the Bloomberg survey median.

Construction of multifamily projects such as condominiums and town houses jumped 16.7 percent to an annual rate of 371,000. Work on single-family properties rose 1.1 percent to a 646,000 rate in September from 639,000 the prior month.

By region, construction surged 13.9 percent in the West and 5.3 percent in the Northeast. Starts were up 4.2 percent in the South and 3.5 percent in the Midwest.

Friday’s figures stand in contrast to a report Thursday showing builder confidence dropped in October to a threemonth low after reaching its highest level in nine years the previous month. Sentiment eased in all four U.S. regions, the National Association of Home Builders/Wells Fargo gauge showed.

Low interest rates will probably help reinforce the market well into 2015, analysts said. The average 30-year, fixed-rate mortgage fell to 3.97 percent last week, the lowest since June 2013, according to data from Freddie Mac, the Federal Home Loan Mortgage Corp. In November 2012, the rate fell to 3.31 percent, the lowest in figures back to 1971.

“While the drop in mortgage rates likely will prompt stronger home sales by the turn of the year, we don’t expect a significant upward trend in construction to reemerge until next spring,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

In a week when stock markets were roiled over concern that the global economy is faltering, U.S. homebuilders had the biggest gain in almost nine months on Friday.

Shares of KB Home, based in Los Angeles, led the gain, rising 6.5 percent to $15.51. Shares of Fort Worth-based D.R. Horton Inc., the largest U.S. builder by revenue, rose 6.2 percent to $21.56.

“Even when the market was having some pretty bad days this week, the builders outperformed,” said Megan McGrath, a housing analyst with MKM Holdings LLC in Stamford, Conn. “A lot of little things have gotten together to get people maybe a little more optimistic.”

Home prices rose 6.4 percent in August compared with a year ago, according to real estate data provider CoreLogic. This marks a substantial slowdown. Home values had chalked up annual gains of as much as 12 percent toward the end of last year.

Those increases are substantially larger than wage growth, which has barely exceeded inflation by increasing at roughly 2 percent a year. Without wages rising more strongly, it becomes difficult to save for a down payment and qualify for a mortgage. This has increased the share of Americans who rent, which has sparked construction of apartment complexes and simultaneously caused monthly rental costs to rise.

Online real estate firm Zillow estimates that it takes 29 percent of people’s household income to pay for rent, compared with 24 percent in 2000. The share of adults doubling up with a roommate to cover rent has also increased to 32 percent from 25 percent in 2000.

After adding to gross domestic product through much of 2013, residential construction has been uneven this year. Home building contributed 0.27 percentage point to the 4.6 percent annualized gain in the economy in the second quarter. It subtracted from the national gross domestic product in the previous six months.

Some lenders, including San Francisco-based Wells Fargo & Co., have tempered their outlook for an industry that hasn’t completely healed from the downturn that brought on the last recession.

“While the residential real estate market has definitely gotten better, which is good for the U.S. economy, it has not fully recovered,” Chief Executive Officer John Stumpf said during a Tuesday earnings call.

“I believe there are several factors holding the housing market back from a complete recovery,” including slow household formation, elevated student debt levels, weak inventories and still-tight credit, he said.

Some of the ingredients for a pickup in the housing market remain in place. The economy has added an average 227,000 jobs per month through September, on pace for its best performance since 1999. The unemployment rate has fallen to 5.9 percent from 6.7 percent at the end of last year

Though new homes represent only a fraction of the housing market, they have an outsized impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the Home Builders.