Housing starts in October probably capped the strongest two months in four years, indicating U.S. residential construction is improving, economists said before a report today.

Builders broke ground on 840,000 houses at an annual rate, following the prior month’s 872,000 pace, the best back-to-back reading since mid-2008, according to the median estimate of 82 economists surveyed by Bloomberg. Housing permits, a proxy for future construction, may show the gains will be sustained.

Record-low mortgage rates and less risk that property values will keep falling may continue to attract buyers, giving the economy a lift and benefitting companies such as Toll Brothers Inc. (TOL) Federal Reserve Chairman Ben S. Bernanke is among those that have singled out housing as one of the industries to nurture in order to spur the economic recovery.

“The foundations for housing are getting better,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut. “Prices have stabilized, and people are feeling a bit more confident.”

The housing data are due from the Commerce Department at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from 780,000 to 873,000.

Building permits may have eased to an 864,000 annual rate from a four-year high of 890,000 in September, according to the median forecast of economists surveyed. Construction applications that are higher than the projected level of starts signal construction will continue to strengthen.

Sandy’s Influence

The Northeast may be one area of the country that saw a setback in October as Sandy, the biggest Atlantic storm in history, struck the region late in the month, according to economists at UBS. Nonetheless, the share of activity in the affected area is small by comparison, with an estimated 60,000 permits issued in 2011, or less than 10 percent of the U.S. total, they estimated.

Given the superstorm came ashore Oct. 29, the fallout on housing is more likely to be seen in November data, according to the UBS economists. In many cases, the rebuilding of damaged homes may be extensive enough to constitute a new start, and construction may rise in later months as the region recovers, they said.

Data this week reinforced signs of a turn in residential real estate. Purchases of previously-owned houses rose 2.1 percent in October to a 4.79 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg, the National Association of Realtors reported. Inventories dropped to the lowest level in almost a decade.

Gaining Confidence

The National Association of Home Builders/Wells Fargo index of builder confidence climbed in November to a six-year high of 46, the Washington-based group said yesterday. The group’s gauge of current single-family home sales advanced to the highest level since May 2006 as it jumped by the most since September 2002.

Toll Brothers, the Horsham, Pennsylvania-based luxury homebuilder, is among companies saying the market probably will keep improving.

“We’re in a strong phase of the recovery,” Martin Connor, chief financial officer, said during a conference presentation on Nov. 15. “It’s a function of five years of pent-up demand being released,” and “affordability and rising prices is also spurring people to buy.”

Investors remain upbeat about the industry. The Standard & Poor’s Supercomposite Homebuilding (S15HOME) Index has surged 72 percent this year through yesterday, outpacing a 10 percent gain for the broader S&P 500 (SPX) gauge.

Mortgage Rates

Low borrowing costs and cheaper properties indicate home buying is coming within reach of more Americans. The average rate on a 30-year fixed mortgage dropped to 3.34 percent in the week ended Nov. 15, the lowest in records dating to 1971, according to McLean, Virginia-based Freddie Mac.

“Continued weakness in housing -- reflected in falling prices, low rates of new construction, and historic levels of foreclosure -- has proved a powerful headwind to recovery,” Fed Chairman Bernanke said in a Nov. 15 speech in Atlanta, Georgia. “It is encouraging, therefore, that we are seeing signs of improvement in the housing market in most parts of the country.”

                      Bloomberg Survey

================================================================
                           Housing  Housing Building Building
                            Starts   Starts  Permits  Permits
                            ,000’s     MOM%   ,000’s     MOM%
================================================================

Date of Release              11/20    11/20    11/20    11/20
Observation Period            Oct.     Oct.     Oct.     Oct.
----------------------------------------------------------------
Median                         840    -3.7%      864    -2.9%
Average                        838    -3.9%      862    -3.1%
High Forecast                  873     0.1%      920     3.4%
Low Forecast                   780   -10.6%      825    -7.3%
Number of Participants          82       82       57       57
Previous                       872    15.0%      890    11.1%
----------------------------------------------------------------
4CAST                          840    -3.7%      870    -2.3%
ABN Amro                       837    -4.0%     ---
Action Economics               850    -2.5%      865    -2.8%
Aletti Gestielle               820    -6.0%      870    -2.3%
Ameriprise Financial           840    -3.7%      840    -5.6%
Banca Aletti                   840    -3.7%      870    -2.3%
Bank of Ireland                840    -3.7%     ---
Bank of the West               847    -2.9%      865    -2.8%
Bantleon Bank AG               850    -2.5%      870    -2.3%
Barclays                       825    -5.4%     ---
BBVA                           850    -2.5%      870    -2.3%
BMO Capital Markets            830    -4.8%      865    -2.8%
BNP Paribas                    830    -4.8%     ---
BofA Merrill Lynch             815    -6.5%      830    -6.7%
Briefing.com                   815    -6.5%      900     1.1%
Capital Economics              835    -4.2%     ---
CIBC World Markets             833    -4.5%      857    -3.7%
Citi                           800    -8.3%      840    -5.6%
ClearView Economics            780   -10.6%      830    -6.7%
Commerzbank AG                 840    -3.7%      870    -2.3%
Credit Agricole CIB            850    -2.5%      860    -3.4%
Credit Suisse                  845    -3.1%      860    -3.4%
Danske Bank A/S                860    -1.4%      864    -2.9%
DekaBank                       820    -6.0%      860    -3.4%
Desjardins Group               865    -0.8%      870    -2.3%
Deutsche Bank Securities       865    -0.8%      880    -1.1%
Deutsche Postbank AG           860    -1.4%     ---
Exane                          850    -2.5%     ---
Fact & Opinion Economics       836    -4.1%     ---
First Trust Advisors           815    -6.5%     ---
FTN Financial                  850    -2.5%      860    -3.4%
Goldman, Sachs & Co.           872     0.0%     ---
Hammer Partners SA             840    -3.7%     ---
Helaba                         840    -3.7%      840    -5.6%
High Frequency Economics       820    -6.0%      840    -5.6%
HSBC Markets                   835    -4.2%      855    -3.9%
Hugh Johnson Advisors          860    -1.4%     ---
IDEAglobal                     850    -2.5%      875    -1.7%
IHS Global Insight             823    -5.6%      865    -2.8%
Informa Global Markets         805    -7.7%      830    -6.7%
ING Financial Markets          855    -2.0%      852    -4.3%
Insight Economics              825    -5.4%     ---
Intesa Sanpaulo                835    -4.2%      865    -2.8%
J.P. Morgan Chase              830    -4.8%      870    -2.3%
Janney Montgomery Scott        853    -2.2%      872    -2.0%
Jefferies & Co.                815    -6.5%      835    -6.2%
John Hancock Financial         820    -6.0%      863    -3.0%
Landesbank Berlin              835    -4.2%      860    -3.4%
Landesbank                     830    -4.8%      872    -2.0%
Lloyds Bank                    850    -2.5%      870    -2.3%
Maria Fiorini Ramirez          840    -3.7%     ---
Market Securities              828    -5.1%     ---
MET Capital Advisors           870    -0.2%     ---
Mizuho Securities              807    -7.5%     ---
Moody’s Analytics              830    -4.8%      875    -1.7%
Morgan Stanley & Co.           840    -3.7%     ---
National Bank Financial        850    -2.5%      870    -2.3%
Natixis                        850    -2.5%     ---
Nomura Securities              873     0.1%      920     3.4%
Nord/LB                        850    -2.5%      860    -3.4%
OSK Group/DMG                  820    -6.0%     ---
Oxford Economics               840    -3.7%      850    -4.5%
Pierpont Securities            825    -5.4%     ---
PNC Bank                       820    -6.0%      825    -7.3%
Prestige Economics             830    -4.8%      880    -1.1%
Raiffeisenbank International   870    -0.2%      900     1.1%
Raymond James                  840    -3.7%      860    -3.4%
RBC Capital Markets            835    -4.2%     ---
Regions Financial              840    -3.7%     ---
Renaissance Macro Research     830    -4.8%      875    -1.7%
Scotiabank                     855    -2.0%     ---
Societe Generale               855    -2.0%      870    -2.3%
Standard Chartered             840    -3.7%      850    -4.5%
Stone & McCarthy               835    -4.2%      855    -3.9%
TD Securities                  825    -5.4%      860    -3.4%
UBS                            825    -5.4%      850    -4.5%
UniCredit Research             870    -0.2%      875    -1.7%
Union Investment               850    -2.5%      850    -4.5%
University of Maryland         860    -1.4%      880    -1.1%
Wells Fargo & Co.              836    -4.1%     ---
Westpac Banking Co.            829    -5.0%      846    -5.0%
Wrightson ICAP                 830    -4.8%      855    -3.9%
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net