Housing starts in the United States are exceeding expectations; COVID-19 poses a risk

WASHINGTON (Reuters) – US housing construction rose more than expected in October as the housing market continues to be pulled by record mortgage rates, but momentum could slow due to a resurgence in new COVID-19 infections that are straining the economic recovery.

FILE PHOTO: A house under construction stands behind a “sold” sign at a new development in York County, South Carolina, US February 29, 2020. REUTERS / Lucas Jackson / File Photo

Wednesday’s Commerce Department report also showed building permits were unchanged at a 13-and-a-half-year high. It followed Tuesday’s data showing the smallest gain in retail sales in October since the recovery from the pandemic began in May. The economy slows as more than $ 3 trillion in government coronavirus relief dries up.

Daily new cases of COVID-19 have surpassed 100,000 since the start of the month, bringing the number of infections in the United States to more than 11 million, according to a Reuters tally. Several states and local governments have imposed restrictions on businesses, raising fears that the resulting weak demand could trigger a new wave of layoffs that could spill over into the economy and slow the housing market’s run.

“The million dollar question remains how long the housing recovery can continue as the shocking number of new coronavirus cases cripples trade in many parts of the country and leads to further restrictions and lockdowns,” said Chris Rupkey, chief economist of MUFG in New York.

Housing starts rose 4.9% to a seasonally adjusted annual rate of 1.530 million units last month. That brought residential construction closer to its pace of 1.567 million units in February. Economists polled by Reuters had forecast that housing starts would rise at a rate of 1.460 million units in October.

Permits for future housing construction remained unchanged at a rate of 1.545 million units in October, the highest since March 2007.

The densely populated southern region accounted for 56.1% of residential construction last month. Revolutionary activity also increased in the West and Midwest, but fell in the Northeast.

Home construction jumped 14.2% year-on-year.

Single-family home construction, the largest share of the housing market, rose 6.4% to a seasonally adjusted annual rate of 1.179 million units last month, the highest level since April 2007.

Single-family housing starts have increased for six consecutive months. This segment of the market is being boosted by the pandemic, which has seen at least 21% of the workforce working from home. This has led to a migration from city centers to suburbs and other low density areas as Americans seek spacious housing for home offices and schools.

“The south, interior and mountainous regions of the west are experiencing a massive influx of residents from the major metropolitan areas of the northeast and west coast,” said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, Carolina. North. “Just over 80% of all single-family homes built in the past year have been in the south or west, meaning construction can continue at a much higher rate during the months. winter than in previous years. “

A survey on Tuesday showed that builders’ confidence in single-family homes hit an all-time high in November. But builders said “the availability of lots and materials is hampering some construction activity.”

Building permits for single-family homes climbed 0.6% to 1.120 million units in October.

A separate report released on Wednesday by the Mortgage Bankers Association showed applications for loans to buy a home rose 4% last week from the previous week.

The coronavirus recession, which began in February, has disproportionately affected low wages. At least 20 million people receive unemployment benefits.

The PHLX real estate index traded higher, outperforming a mixed US stock market. The dollar slipped against a basket of currencies. The prices of longer-term US Treasuries were trading higher.

BIGGER FOOTPRINT

Although the housing market is only a fraction of gross domestic product, it has a larger economic footprint. Its continued strength should help keep the economy afloat, although GDP growth is expected to slow significantly in the fourth quarter after a historic performance during the July-September period.

Home construction is being boosted by low inventories, especially of used homes, and low mortgage rates. The 30-year fixed mortgage rate is about 2.84% on average, according to data from mortgage finance agency Freddie Mac.

Starts in the volatile multi-family housing segment remained unchanged at a rate of 351,000 units. Building permits for multi-family housing projects fell 1.6% to a rate of 425,000 units. This is the third consecutive monthly decline.

“This is an indication that developers are limiting their investments as rental vacancy rates have increased,” said Matthew Pointon, real estate economist at Capital Economics in New York City.

According to Vitner of Wells Fargo Securities, rental data also suggests a shift in tenant preferences, moving from urban lifestyle apartments to suburban apartments that offer more outdoor amenities.

Home completions fell 4.5% to a rate of 1.343 million units last month. Realtors estimate housing starts and completion rates need to be in the 1.5 million to 1.6 million units per month range to close the inventory gap. The housing stock under construction rose 1.2% to a rate of 1.224 million units, the highest since December 2006.

Reporting by Lucia Mutikani; Editing by Paul Simao