Housing Starts Increase at Fastest Pace in 4 Years

Housing Starts
Housing starts rose to their highest rate in more than four years in October of 2012.  U.S. builders started construction last month on the most housing units since July of 2008.  The Commerce Department said that builders broke ground on homes in October at a seasonally adjusted annual rate of 894,000. That's a 3.6 percent gain from September.  The median forecast of 82 economists expected groundbreaking to slow to an 840,000 pace.  Housing starts are 87 percent above the annual rate of 478,000 in April of 2009, which was the recession low, providing more evidence that the housing market has decisively turned around after an unprecedented collapse that landed the economy in its worst recession since the Great Depression.

The recovery, marked by rising home sales, prices and building activity, is being driven by pent-up demand, record low mortgage rates, and a lower risk that property values will keep falling, and is expected to continue to attract buyers.  In addition, permits for the construction of single-family homes also advanced to the highest level in four years.

A steady rise in the number of U.S. households, which fell during the 2007-2009 recession as financially strapped Americans moved in with friends and family, is also supporting the housing sector.  Economists at Goldman Sachs estimate that household formation -- the net increase in the number of households each year -- will increase to a 1.2 million rate in 2013 from 1 million currently.  They forecast housing starts rising from the current monthly rate (894,000) to 1 million by the end of next year and 1.5 million by the end of 2016.

The Federal Reserve has targeted housing as a channel to boost U.S. growth, announcing in September that it would buy $40 billion in housing debt per month to keep down borrowing costs.  "It seems likely that, on net, residential investment will be a source of economic growth and new jobs over the next couple of years," Fed Chairman Ben Bernanke said recently at the Economic Club of New York.

Builder Confidence
Builder confidence rose to its highest level in six and a half years, according to a survey by the National Association of Home Builders/Wells Fargo. Their index of builder sentiment rose to 46 this month, up from 41 in October. It was the highest reading since May 2006, just before the housing bubble burst.

The index has been rising since October 2011, and has surged 27 points in the past 12 months, the sharpest annual increase on record.

Home Sales
Sales of previously occupied homes rose 2.1 percent to 4.79 million in October, the National Association of Realtors said.  Sales are near their highest level in five years, excluding temporary spikes in 2009 and 2010 when a homebuyer tax credit boosted purchases.

A key factor fueling the gains is a gradually improving economy, which has increased the number of people looking for homes.  At the same time, fewer homes are available for sale, which is helping to push up prices.

As mentioned previously, mortgage rates have hit all-time lows; at the same time, rents are rising, making the purchase of a single-family home or condominium more attractive.