U.S. housing starts, building permits peak

WASHINGTON • U.S. homebuilding surged to more than a 12-year high in August as both single- and multi-family housing construction accelerated, suggesting that lower mortgage rates were finally providing a boost to the struggling housing market.

The report from the Commerce Department on Wednesday also showed permits for future home construction rose to levels last seen in 2007. Housing and manufacturing have been the weak spots in the economy, now in its 11th year of expansion, the longest in history.

The jump in homebuilding activity last month added to strong retail sales data in suggesting the economy continues to grow moderately and is probably not flirting with a recession as has been flagged by financial markets. A yearlong trade war between the United States and China has dimmed the economic outlook.

“A prolonged period of lower mortgage rates has perhaps finally encouraged prospective homebuyers to get off the sidelines,” said John Pataky, executive vice-president at TIAA Bank in Jacksonville, Fla. “I’d like to see a couple more months of data like this before I’m convinced the market’s fortunes have really changed.”

Housing starts jumped 12.3 per cent to a seasonally adjusted annual rate of 1.364 million units last month, the highest level since June 2007, the government said. Data for July was revised up to show homebuilding falling to a pace of 1.215 million units, instead of decreasing at a rate of 1.191 million units as previously reported.

Economists polled by Reuters had forecast housing starts would advance to a pace of 1.250 million units in August. Building permits increased 7.7 per cent to a rate of 1.419 million units in August, the highest level since May 2007. Housing starts rose 6.6 per cent on a year-on-year basis in August.

The housing market, the most sensitive sector to interest rates, had until now shown few signs of benefiting from the Fed’s monetary policy easing. Builders had blamed the lacklustre performance on land and labour shortages.

A survey on Tuesday showed confidence among homebuilders rose in September, with builders reporting solid demand for homes. But builders said scarce building lots and labour remained a challenge and also noted that trade tensions, which have undercut manufacturing, were “holding back home construction in some parts of the nation.”

Firmer demand for housing was underscored by a separate report on Wednesday from the Mortgage Bankers Association showing applications for loans to purchase a home increased for a third straight week last week.