Housing construction jumps by largest amount in 34 years

Housing starts surged 25.5 percent in October, which is the biggest jump in 34 years behind strong gains across single- and multi-family construction.

Construction rose to a seasonally adjusted annual rate of 1.32 million units, up from 1.05 million in September, the highest level since August 2007 and before the economic downturn, the Commerce Department reported on Thursday. 

{mosads}The jump in starts was the largest percentage gain since July 1982.

Single-family starts bolstered last month’s figures, rising 10.7 percent to the highest level since October 2007. Multi-family production jumped 68.8 percent following a decline in September.

“These robust figures correlate with strong builder optimism in the housing market,” said Ed Brady, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Bloomington, Ill.

“A firming job market, a growing economy and rising household formations will keep the housing recovery on track into next year,” Brady said.

Demand for housing has been strong amid historically low mortgage rates but credit availability and a lack of homes for sale have stymied potential buyers. 

Combined single- and multi-family starts posted double-digit gains in all four regions in October.

The Northeast, Midwest, South and West increased 44.8 percent, 44.1 percent, 17.9 percent and 23.2 percent, respectively.

“Multifamily production bounced back after an unusually weak reading last month while single-family starts exhibited unusually strong growth as well,” said Robert Dietz, NAHB’s chief economist.

“Though October’s single- and multi-family production rates are clearly unsustainable, we expect continued growth in the housing sector in the months ahead,” Dietz said. 

Permits to build homes edged up 0.3 percent to a seasonally adjusted annual rate of 1.23 million in October.

Single-family permits rose 2.7 percent, while multi-family permits fell 3.3 percent.

Regionally, permits increased 12.1 percent in the Midwest and 7.5 percent in the West. Meanwhile, the Northeast posted a 21.1 percent loss and the South a 2.4 percent drop.

“With improved employment and income prospects, millennials are an expanding portion of housing demand, as they move out of their parents’ homes,” said David Berson, chief economist at Nationwide. 

One of the biggest questions is how President-elect Donald Trump’s polices will affect the housing market. 

Following last week’s election, mortgage rates have jumped to 3.94 percent from 3.57 percent, which is the highest level since January. 

Ralph McLaughlin, chief economist at Trulia, said that Trump could overhaul the Dodd-Frank financial law that loosen bank regulations and spurs more lending.

“While we think some of his broader economic policies might hurt builders, such as immigration and trade policies that could restrict both labor supply and raw materials, we also think he’ll likely implement builder-friendly policies, such as infrastructure stimulus and financial sector reform,” McLaughlin said. 

“Though Mr. Trump as discussed demand-side policies that would ease mortgage lending, such as Dodd-Frank reform, we encourage the president-elect to also focus on supply-side policies given inventory shortages across the country,” he said.