US housing market surge begins in November. Expectations of economists were pleasantly flouted when homebuilders began construction on 9.3% more homes in November. The data was revealed by the Commerce Department early Tuesday. It stated that housing starts came in at a seasonally adjusted annual rate of 685,000 in November, following a revised 627,000 in October.
The common expectations by economists had anticipated housing starts to rise to 630,000 after the originally reported 628,000 in October.
Following a rate of 644,000 in October, applications for building permits rose 5.7% to 681,000. Thomson Reuters stated that economists had expected a drop to 635,000 after the originally estimated 653,000 in October.
David Ader, market strategist with CRT Capital, wrote in a research note, “The better-than-expected gain is mostly in the multi-family sector, which is notoriously volatile and generally something to dismiss. It’s possible this reflects an increase in rental demand…[it's] not good news for single family home prices.
Ian Sheperdson, chief U.S. economist with High Frequency Economics, explained, “In the multi-family sector, the upward trend began to emerge as long ago as the first half of 2010 and has continued steadily since. The uptick in the single-family sector, he said, is a relatively recent phenomenon by comparison.
“This is not so hard to understand because the collapse of the housing market and the tightening of mortgage lending conditions have pushed large numbers of people into renting who would under normal circumstances have preferred to buy a home.”
Dan Greenhaus, chief global strategist with BTIG, stated, “Housing starts have trended up for two consecutive months after declining from July through September. Overall starts are now well off their low by nearly 44%, however the headline figure remains considerably below pre-crisis levels (the peak was 2.2 million starts in January 2006).”
The National Association of Home Builders stated that Monday saw an improvement in homebuilder sentiment for a third consecutive month in December. The NAHB/Wells Fargo index climbed 2 points to a reading of 21.
Sheperdson wrote, “We cannot ignore the third straight gain in the NAHB index, taking it almost back to its post-Lehman peak, but achieved this time without the assistance of the homebuyer tax credit.”
Greenhaus added, “Builder sentiment is improving in line with the increase in starts.”
A Barclays Capital report suggested, “It does suggest that residential investment will make a small positive contribution to fourth quarter gross domestic product growth. Our tracking estimate now stands at 3.4%, up from 3.3% previously.”
Despite the fact that improvements in homebuilding and sentiment indicate that the housing market is bottoming out and perhaps headed for a recovery in the long term, economists say these are only baby steps in the long path toward a healthy housing sector.
Greenhaus wrote, “That does not mean prices may not fall further and it does not mean it’s all smooth sailing from here. But generally speaking, the housing sector is performing okay of late. Given how badly it had been doing, we’ll take what we can get.”