Housing Starts Rebound and Building Permits Hit 5-Month High

WASHINGTON — Housing starts in November rebounded from a seven-month low, and permits surged to a five-month high, signs of strength in the housing market as the Federal Reserve starts to raise interest rates after years of easy monetary policy.

Other data released on Wednesday showed the industrial sector continuing to struggle under the weight of a strong dollar, cuts in inventory investment and spending reductions by energy companies in response to persistently low oil prices.

In its housing report, the Commerce Department said that groundbreaking jumped 10.5 percent to a seasonally adjusted annual pace of 1.17 million units last month. Building permits rose 11 percent to a 1.29 million-unit rate, the highest since June.

With permits exceeding starts, home building is likely to remain supported in the months ahead.

The Fed on Wednesday raised its benchmark overnight interest rate by 25 basis points from near zero, the first rate increase in nearly a decade. It gave an upbeat assessment of the economy and noted that “the housing sector has improved further.”

Housing Construction

New private housing starts and permits authorized during the month, at a seasonally adjusted annual pace.

The Fed made clear that the tightening cycle was likely to be gradual, so the increase in borrowing costs was not expected to upset the housing recovery.

“The interest rate is still low compared to historical standards,” said Kevin Young, an analyst at IBISWorld in Los Angeles.

In a separate report, the Fed said industrial production fell 0.6 percent in November as unusually warm weather caused a sharp drop in demand for utilities.

The third consecutive monthly decline in industrial output also reflected another sharp fall in mining production, driven by a plunge in drilling of oil and gas wells. Manufacturing output was unchanged. However, motor vehicle production fell for the first time since August, a worrying signal for manufacturing.

“We expect the auto sector to remain a drag on total production in coming months,” said Laura Rosner, an economist at BNP Paribas in New York. “On balance, manufacturing activity is likely to remain weak as the U.S. economy is still adjusting to the shocks of lower energy prices and weaker foreign demand.”

Stocks were trading higher, and the Standard & Poor’s home building index rallied. D.R. Horton, the largest American home builder, rose more than 2 percent in afternoon trading. Lennar, the nation’s second-largest home builder, advanced 1.6 percent.

November was the eighth straight month that housing starts remained above an annual pace of one million units, the longest stretch since 2007. Economists predict starts will average 1.1 million units for 2015, which would be the highest since 2007 and up from one million in 2014.

The housing market recovery remains constrained by a persistent shortage of houses for sale. This has resulted in home prices rising faster than salaries, pushing more people toward renting.
“Tight inventories and high prices will provide the incentives for builders to continue ramping up activity,” said Gregory Daco, head of United States macroeconomics at Oxford Economics in New York.

Single-family housing starts, the largest segment of the market, increased 7.6 percent to a 768,000-unit pace. That was the highest reading since January 2008. Warm weather also probably increased activity. Groundbreaking on single-family houses rose in the South, Northeast and West, but fell in the Midwest.

Starts for the volatile multifamily segment surged 16.4 percent to a 405,000-unit pace. That segment has been the driver of residential construction but a shift toward single-family houses is expected in 2016.

“Home builders are making progress addressing the shortage of newer vintage single-family homes we see in many markets, especially affordable housing products with a price of under $200,000,” said Tian Liu, chief economist at Genworth Mortgage Insurance in Raleigh, N.C.

Permits to build single-family houses increased 1.1 percent last month to the highest level since December 2007. Multifamily building permits soared 26.9 percent.

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