New-home construction in the U.S. fell in July, while the number of building permits jumped to the highest level in four years, indicating the industry will keep improving in the second half of the year.
Starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008.
Less costly properties combined with record-low mortgage rates are reviving demand, helping builders like PulteGroup Inc. (PHM:US) boost profits. A drop in foreclosures, increased hiring and easier access to credit may be required to foster a more pronounced and sustained rebound in the industry that triggered the recession.
“Housing is turning out to be one of the better parts of the economy at this time,” Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, said before the report. “It is actually supportive of growth rather than being a drag like it was before.”
Starts estimates in the Bloomberg survey ranged from 730,000 to 800,000. The prior month was revised down from a previously reported 760,000 pace.
The number of Americans filing applications for unemployment benefits was little changed last week, bringing the average over the past month to the lowest level since late March, a sign the labor market has stabilized after employment picked up in July, a report from the Labor Department also showed today.
Jobless claims climbed by 2,000 to 366,000 in the week ended Aug. 11, in line with the median forecast of 45 economists surveyed by Bloomberg, which called for an increase to 365,000. The four-week moving average, a less volatile measure, dropped to 363,750, the fewest since the week ended March 31.
Stock-index futures extended earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.3 percent to 1,407.1 at 8:32 a.m. in New York.
Construction of single-family houses fell 6.5 percent to a 502,000 rate, the first decline since February.
Work on multifamily homes, such as townhouses and apartment buildings, rose 12 percent to an annual rate of 244,000, a five- month high.
“The multifamily sector is on fire, and we expect that will continue to be the case for the next few quarters,” Regions’ Moody said before the report. “The recovery in single- family construction remains uneven across markets.”
Three of four regions showed a decline, led by a 5.3 percent decrease in the West. That region also showed the biggest jump in permits, climbing 14 percent in July, taking them to the highest level since June 2008. Building applications in the West soared 54 percent over the past 12 months, the biggest year-to-year jump since December 1986.
Construction company leaders are turning less pessimistic. The National Association of Home Builders/Wells Fargo index of builder confidence climbed in August to the highest level in more than five years, the Washington-based group said yesterday.
Low borrowing costs and cheaper homes are helping spur demand. The average rate on a 30-year fixed mortgage dropped to 3.49 percent in the week ended July 26, the lowest in records dating to 1971, according to McLean, Virginia-based Freddie Mac. The median price of a new house was down 3.2 percent in June from the same time last year, according to figures from the Commerce Department.
PulteGroup, the largest U.S. homebuilder by revenue, posted a better-than-estimated profit and a 32 percent jump in orders in the second quarter. The Bloomfield Hills, Michigan-based company is seeing the market improve, while it had entered 2012 assuming new home sales would be little-changed from 2011, Chairman and Chief Executive Officer Richard J. Dugas said.
“We have been pleasantly surprised as demand throughout the selling season and extending into these initial weeks of July has exceeded our expectations,” Dugas said on a July 26 conference call with analysts.
Still, “many of the macro drivers of demand really haven’t changed all that much,” he said, citing high unemployment, weak consumer sentiment and concern over Europe’s debt crisis and impending U.S. tax changes.
Home Depot Inc. (HD:US), the largest U.S. home-improvement retailer, reported second-quarter profit that topped analysts’ estimates and raised its forecast for profit this year as customers spent more on remodeling projects.
A sustained rebound in demand remains elusive. Sales of new homes unexpectedly dropped in June from a two-year high, Commerce Department figures showed. Contracts to buy existing homes fell 1.4 percent in June, according to the National Association of Realtors.
Builders also have to contend with distressed houses that add to inventory and restrain prices. The mortgage delinquency rate increased in the second quarter for the first time in a year, a sign more borrowers were struggling to pay their bills.
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