Bloomberg News

Housing Starts Probably Rose in May as U.S. Expansion Gets Boost

June 18, 2013

Housing starts probably rose in May, extending a rebound that is helping shore up the U.S. expansion, economists said before a report today.

Builders broke ground on 950,000 houses at an annualized rate, up 11.4 percent from April’s 853,000 pace, according to the median estimate of 82 economists surveyed by Bloomberg. Another report may show the cost of living increased in May for the first time in three months.

Historically low mortgage rates, improvement in the labor market and pent-up demand are spurring optimism among builders such as Hovnanian Enterprises Inc. (HOV:US) The recovery in residential real estate shows how record monetary stimulus from Federal Reserve policy makers, who meet today and tomorrow, is bolstering economic growth.

“The underlying demand is improving on strength in the job market and stronger consumer confidence,” said Mark Vitner, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The key for the Fed is seeing a sustainable recovery. As far as housing goes, I think they’re feeling pretty good about that.”

The Commerce Department will issue its housing starts data at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from rates of 875,000 to 1.02 million.

The number of building permits, a proxy for future construction, fell to 975,000 last month from an almost five-year high of 1.01 million in April, according to the median estimate in the Bloomberg survey. The pace of applications exceeds projected starts and points to further gains in homebuilding.

Mortgage Rates

Improving property values and cheaper borrowing costs have encouraged some Americans to buy homes before mortgage rates head even higher. The average rate on a 30-year fixed loan jumped to a 14-month high of almost 4 percent last week from a four-month low of 3.35 percent in early May, according to Freddie Mac data.

Mortgage rates are climbing because of heightened consumer demand for loans, Neil Dutta, an economist at Renaissance Macro Research LLC in New York, said in a note to clients yesterday.

“Interest rates have risen, but they’re still at historic lows,” Robert Niblock, chief executive officer of Lowe’s Cos., the second-largest U.S. home improvement retailer, said yesterday in an interview. The Mooresville, North Carolina-based company’s sales in the second quarter have recovered from March and April when rainy, colder-than-normal weather limited demand, he said.

Builder Optimism

Builders are also gaining confidence. A measure of builder sentiment climbed in June to its highest level since March 2006, according to a report yesterday. The National Association of Home Builders/Wells Fargo’ gauge rose to 52 from 44 in May, according to the Washington-based group.

“A lot of us are expecting that we need 1.6 million to 1.9 million housing starts to keep up with population growth,” Brad G. O’Connor, chief accounting officer at Red Bank, New Jersey-based builder Hovnanian Enterprises, said in a June 13 presentation. “Housing creation shows that we should still have a fair amount of pent-up demand and an ongoing recovery to the housing market, that we’re just in the beginning of that recovery.”

Homebuilder shares have outperformed the broader market. The Standard & Poor’s Supercomposite Homebuilding Index has surged 62 percent in the past 12 months, compared with a 22.1 percent gain in the S&P 500.

The improvement in housing is extending beyond builders, to companies such as Lumber Liquidators Holdings Inc. (LL:US), a hardwood floor retailer based in Toano, Virginia.

‘Nice Growth’

“We’ve seen some nice growth in our comp stores sales and there is no question that a more positive backdrop is in place,” Daniel E. Terrell, chief financial officer, said in a June 12 presentation. “I think we’re only beginning to see a recovery now.”

Another report today will show the consumer-price index rose 0.2 percent in May after a 0.4 percent decline a month earlier, according the median estimate in a Bloomberg survey. The Labor Department will also release figures at 8:30 a.m. in Washington.

Compared with May 2012, consumer prices may have climbed 1.4 percent after a 1.1 percent year-over-year gain in April that was the smallest since November 2010.

                        Bloomberg Survey

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

Date of Release              06/18    06/18    06/18    06/18
Observation Period             May      May      May      May
----------------------------------------------------------------
Median                        0.2%     0.2%      950      975
Average                       0.2%     0.2%      952      977
High Forecast                 0.5%     0.5%     1020     1100
Low Forecast                 -0.5%     0.1%      875      900
Number of Participants          82       79       82       56
Previous                     -0.4%     0.1%      853     1005
----------------------------------------------------------------
4CAST Ltd.                    0.2%     0.2%      975      965
ABN Amro Inc.                 0.2%     0.2%      938     ---
Action Economics              0.2%     0.2%      975     1000
Ameriprise Financial Inc      0.0%     0.1%      900      920
Banca Aletti & C spa          0.2%     0.1%      975      990
Bank of the West              0.2%     0.2%      970      990
Banorte-IXE                   0.2%     0.2%     ---      ---
Bantleon Bank AG              0.2%     0.2%      970      985
Barclays                      0.2%     0.2%      960     ---
Bayerische Landesbank         0.2%     0.1%      970     ---
BBVA                          0.2%     0.2%      940      970
BMO Capital Markets           0.2%     0.1%      940      967
BNP Paribas                   0.2%     0.1%      975     ---
BofA Merrill Lynch Resear     0.2%     0.1%      950      970
Briefing.com                  0.3%     0.1%      925     ---
Capital Economics             0.1%     0.1%      925     ---
CIBC World Markets            0.3%     0.2%      978      973
Citi                          0.2%     0.2%      910      980
ClearView Economics           0.2%     0.1%      950      980
Comerica Inc                  0.3%     0.1%      960     ---
Commerzbank AG                0.1%     0.1%      970      950
Credit Agricole CIB           0.1%     0.1%      965      995
Credit Suisse                 0.1%     0.1%      950      965
Daiwa Securities America      0.2%     0.2%      940     ---
Danske Bank A/S               0.0%     0.1%      978      977
DekaBank                      0.2%     0.2%      960      960
Desjardins Group              0.2%     0.1%     1010     1000
Deutsche Bank Securities      0.1%     0.1%     1000     1010
Deutsche Postbank AG          0.1%     0.2%      980     ---
DZ Bank                       0.3%     0.2%      940      960
First Trust Advisors          0.1%     0.2%      939     ---
FTN Financial                 0.3%     0.1%      925      930
Goldman, Sachs & Co.         -0.1%     0.1%      981     ---
Helaba                        0.1%     0.1%      960      960
High Frequency Economics      0.2%     0.2%      965      990
HSBC Markets                  0.2%     0.2%      975      975
Hugh Johnson Advisors         0.2%     0.1%      983     ---
IDEAglobal                    0.2%     0.1%      925     1015
IHS Global Insight            0.1%     0.1%      950      985
Informa Global Markets        0.1%     0.1%      930      900
ING Financial Markets         0.2%     0.1%      900      960
Intesa Sanpaolo               0.2%     0.2%      960      990
J.P. Morgan Chase             0.2%     0.1%      960      985
Janney Montgomery Scott L     0.1%     0.1%      940     1009
Jefferies LLC                 0.2%     0.2%      920      945
Landesbank Berlin             0.1%     0.2%      940      965
Landesbank BW                 0.0%     0.1%      980      970
Lloyds Tsb Bank Plc           0.3%     0.2%      943      980
Maria Fiorini Ramirez Inc     0.2%     0.2%      950     ---
Market Securities             0.2%     0.2%      966     ---
MET Capital Advisors         -0.5%     ---       925     ---
Modal Asset                   ---      ---       988     ---
Moody’s Analytics             0.2%     0.2%      905      975
Morgan Stanley                0.2%     0.2%      922     ---
National Bank Financial       0.2%     0.1%      950      990
Natixis                       0.2%     0.2%      900     ---
Nomura Securities Intl In     0.2%     0.2%      915      945
Nord/LB                       0.1%     0.2%      930      980
OSK Group/DMG                 0.2%     0.1%      931     ---
Oxford Economics Ltd          0.2%     0.1%      875      965
Pantheon Macroeconomics       0.2%     0.1%     1000      950
Pierpont Securities LLC       0.2%     0.2%      975     ---
PNC Bank                      0.1%     0.2%     1000     ---
Prestige Economics            0.2%     0.2%      950     1020
Raiffeisenbank Internatio     0.1%     0.2%     1020      980
Raymond James                 0.2%     0.1%      950      960
RBC Capital Markets           0.2%     0.2%      970     ---
RBS Securities Inc.           0.2%     0.2%      920     ---
Regions Financial Corp        0.2%     0.2%      980     1010
Santander Asset Mgmt          ---      ---       990     ---
Scotiabank                    0.1%     ---       920     ---
SMBC Nikko Securities         0.5%     0.2%      930      975
Societe Generale              0.1%     0.1%      995      980
Southern Polytechnic Stat     0.3%     0.5%     ---      ---
Standard Chartered Bank       0.2%     0.1%      970      990
Stone & McCarthy Research     0.2%     0.1%      938      975
TD Securities                 0.2%     0.2%      925      950
UBS                           0.2%     0.2%      955      965
UniCredit Research            0.2%     0.2%      950      990
Union Investment              0.3%     0.2%      930     1100
University of Maryland        0.0%     0.2%      965     1000
Wells Fargo & Co.             0.1%     0.1%      962     ---
Westpac Banking Co.           0.2%     ---       921      965
Wrightson ICAP                0.2%     0.1%      950      970
================================================================

To contact the reporter on this story: Jeanna Smialek in Washington jsmialek1@bloomberg.net.

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


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Companies Mentioned

  • HOV
    (Hovnanian Enterprises Inc)
    • $4.32 USD
    • 0.04
    • 0.93%
  • LL
    (Lumber Liquidators Holdings Inc)
    • $57.34 USD
    • -1.29
    • -2.25%
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