In October permits for new home construction reached the highest level for nearly five and a half years. The previous month saw large price increases for single-family homes, and the article by Reuters in the NY Times suggests that mortgage interest rate increases have not interrupted the housing market recovery.
This is all very positive news, especially as last month the government partially shut down and mortgage rates increased. Economists think the latest data show the housing recovery remains on track. In October the number of building permits increased by 6.2%. This meant the seasonally adjusted annual rate was 1.03 million units, the highest level seen since June 2008. This was above economists’ expectations as it had been predicted the number of building permits would reach 930,000 units.
The lead time for housing starts on new building permits is at least a month, and in September the number of new permits increased by 5.2% and is now up by 13.9% compared to a year earlier. In addition the S&P/Case Shiller composite index which covers 20 metropolitan areas showed an increase of 13.3% in September compared to a year earlier. These are the strongest figures since February 2006. Prices also rose by 0.7% in August.
Recently there have been concerns that the housing market recovery could be stalling, and even though new permits cannot be counted in the GDP, they are a good indication of economic activity. The robust gains in September and October should ease recent concerns about the property market. While higher mortgage rates may have slowed the rate of home sales, there is still strong demand for accommodation. This is at least partially due to the fact that household formation is still recovering, having reached multi-decade lows. This factor is expected to provide continued support for new residential construction.
Figures for home resales fell for the second consecutive month in October. As a result the confidence amongst single-family home-builders has dropped slightly since August. In October the number of permits issued for multifamily homes increased by 15.3% compared to an increase of 20.1% in September. Building permits for buildings consisting of at least five units reached their highest level since June 2008. In September the number of single-family home permits fell by 1.9%, but this sector increased by 08% in October.
The strongest increase for building permits was seen in the South and the West were levels reached the highest since the beginning of 2008. However levels remained flat in the Northeast and declined in the Midwest.