New home construction increased in September after faltering the month before and has now seen the best six month run since the first half of 2008.
Housing starts rose 6.3 percent to a 1.017 million annualized pace from the 957,000 rate in August with the bulk of the gain coming in the multiple unit category, according to the Commerce Department in Washington today. Analysts had forecast 1 million starts.
Groundbreakings for single family homes were essentially unchanged rising just 1.1 percent to 646,000 in September from 639,000 a month earlier. New construction for multiple unit dwellings however rose 16.6 percent to 371,000 annualized units.
Starts have averaged more than 1.0 million monthly since March, and while this is the strongest stretch since the financial crash, it is still well below the 30 year monthly average of 1.4 million or the first five years of the last decade when 1.7 million units were begun annually.
Construction rates have improved steadily since the end of 2011 but the progress has been uneven and assisted by extraordinarily low mortgage rates for much of the period.
For most of 2012 and almost the first half of 2013 30 year fixed rate mortgages could be obtained for under 4.0 percent, the lowest rates in modern history. The Federal Reserve targeted mortgage rates and other commercial market rates with its quantitative easing asset purchase program, in an effort to support the housing market and foster construction employment.
Mortgage rates have fallen recently. The average 30 fixed rate mortgage fell to 3.93 percent on Wednesday according to Bankrate.com, the lowest it has been since May 2013. In November 2012 the rate was 3.31 percent the lowest in records back to 1971.
Despite the historically low interest rates for home loans, demand for housing has been limited by several factors beyond the control of the central bank.
Job creation has remained well below the rate of previous recoveries and, what is perhaps more important, wage growth has been limited to just above the rate of inflation leaving families with little financial cushion to use for new housing. In addition, many of the unemployed from the recession and its aftermath have not found new full-time employment. Credit standards, tightened substantially after the financial crisis, have also remained an impediment to many young families looking for a first home.
New home construction was strongest in the West rising 13.9 percent. It gained 5.3 percent in the Northeast, 4.2 percent in the South and 3.5 percent in the Midwest.
Building permits also increased in September, rising 1.5 percent to a 1.02 million annualized pace and pointing to a rising pace of future projects. They were forecast to reach 1.03 million, according to the Bloomberg survey median.
Chief Market Strategist
WorldWideMarkets Online Trading