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Construction Leads To Boost As Building Permits in U.S. Jump to Five-Year High

[Post Category: Industry News]

Building permits climbed in October to the highest level in more than five years, signaling the U.S. residential real-estate market will strengthen in 2014.

Jump in building permits leads to a delayed jump in home sales and as a result future increase in New Homeowner leads.
For companies who market to builders, contractors and the likes, a jump in building permits signals an increase in construction leads.

Applications (NHSPATOT) for new construction rose 6.2 percent to a 1.03 million annualized rate, beating all forecasts in a Bloomberg survey of economists and the highest since June 2008, according to Commerce Department figures issued today in Washington. Other data showed property values last quarter increased by the most in more than seven years.

The data indicated multifamily units are poised to lead the advance in homebuilding in coming months as construction companies look past higher borrowing costs and proceed with larger projects. Another report showed consumer sentiment remains fragile heading into the holiday-shopping season, a sign of growing concern the economy will be set back by political gridlock in Washington.

“Housing will still contribute to growth,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose permits forecast was the highest in a Bloomberg survey. “We have had a backup in interest rates, but I don’t think the backup has been large enough to really choke off housing.”

Stocks rose as the sustained rebound in housing helped offset the unexpected drop in household confidence. The Standard & Poor’s 500 Index climbed 0.1 percent to 1,805.08 at 12:15 p.m. in New York. The S&P Supercomposite Homebuilding index jumped 3.6 percent.

The median estimate of 47 economists surveyed by Bloomberg was for a 930,000 rate in permits. Projections ranged from 875,000 to 985,000.

Data Delayed

Information on housing starts, which usually accompanies the data on applications, were delayed until Dec. 18 because last month’s government shutdown prevented the agency from gathering the figures in time.


The political bickering over the budget that prompted a 16-day partial shutdown of federal agencies last month, and the botched rollout of the Obama administration’s signature health-care plan are having a lingering effect on Americans. Consumer confidence declined in November to a seven-month low as Americans grew more pessimistic about the labor-market outlook.

The Conference Board’s sentiment index fell to 70.4 from 72.4 in October, the New York-based private research group said today. The median forecast in a Bloomberg survey of 78 economists called for a November reading of 72.6.

Holiday Discounting

The drop helps explain why retailers such as Best Buy Co. (BBY) say they’ll match competitors’ discounts this holiday-shopping season. More employment opportunities and wage gains would help lay the groundwork for a pickup in household purchases that make up about 70 percent of the U.S. economy.

“People think that the government’s not capable of meeting their needs in the way that they’d hoped,” said Drew Matus, deputy U.S. chief economist at UBS Securities LLC in Stamford, Connecticut. “The federal government’s inability to execute on almost anything” is contributing to the malaise, he said.

Consumer assessments of current labor-market conditions held up this month, a sign that gains in employment are probably being sustained. More said jobs were plentiful and fewer said positions were harder to get, the Conference Board’s data showed.

The weakness was in views on the outlook six months from now, evidence of the uncertainty being created by lawmakers. The barometer of consumer expectations declined to the lowest level since March amid growing concern over job availability and incomes.

Home Values

Other figures showed homeowners may be one group that is feeling wealthier. The S&P/Case-Shiller national home-price gauge rose 11.2 percent in the third quarter from the same period in 2012, the biggest year-over-year advance since the first three months of 2006. Its index of property prices in 20 cities increased 13.3 percent in September from a year earlier.

The data indicate sellers are standing firm on asking prices as buyers compete for a limited number of available properties. Higher home values are helping propel gains in Americans’ net worth.

“Housing demand has clearly improved this year,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York who projected a 13.2 percent year-over-year increase. “The housing market has benefited from fewer foreclosures over the last year, the share of distressed housing transactions is back to pre-crisis levels, and that has helped to boost home prices in many parts of the country.”

Fed Outlook

Federal Reserve officials are keeping an eye on the housing market as they consider scaling back their $85 billion-a-month bond-buying program, known as quantitative easing. Policy makers last week signaled they may taper “in coming months” if the economy improves as anticipated, according to the record of the Federal Open Market Committee’s Oct. 29-30 gathering, released Nov. 20 in Washington.

The report from the Commerce Department showed permits for multifamily units climbed 15.3 percent in October to a 414,000 pace, the most since June 2008, and followed a 20.1 percent jump in September. Excluding a surge related to a change in New York City’s building code that took effect in July 2008, applications would have been the strongest since November 2007, the month before the last recession began.

Single-family building permits climbed 0.8 percent last month to a rate of 620,000.

Regional Breakdown

Two of four regions had an increase in building permits in October, led by a 15.4 percent jump in the West, according to the report. Permit issuance also rose in the South, declined 9.6 percent in the Midwest and was little changed in the Northeast.

Mortgage rates that jumped 1 percentage point in less than two months crimped affordability for some homebuyers, weighing on demand, though rates have since stabilized. The average rate for a 30-year, fixed-rate mortgage was 4.22 percent in the week ended Nov. 21, down from a recent peak of 4.58 percent on Aug. 22, according to Freddie Mac, in McLean, Virginia.

Though the rise in rates may have initially slowed momentum, it hasn’t halted it. Starts are still short of the 2.1 million in 2005 at the height of the boom, which was a three-decade high.

Hovnanian Enterprises Inc., a Red Bank, New Jersey-based homebuilder, listed tight housing inventories, pricing power and continued affordability as tailwinds for the industry.

“We firmly believe we have a lot of runway ahead of us and a lot of opportunity,” David Valiaveedan, vice president of finance for Hovnanian, said Nov. 14 at the UBS Building and Building Products CEO Conference. Compared with previous housing cycles, homebuilders are “way under-producing the long-term demand.”





Based on article in Bloomberg


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