Housing starts probably rose in May, extending a rebound that is helping shore up the U.S. expansion, economists said before a report today.
Builders broke ground on 950,000 houses at an annualized rate, up 11.4 percent from April’s 853,000 pace, according to the median estimate of 82 economists surveyed by Bloomberg. Another report may show the cost of living increased in May for the first time in three months.
June 17 (Bloomberg) -- Jerry Howard, chief executive officer of the National Association of Home Builders, talks about the U.S. housing and mortgage markets. He speaks with Sara Eisen and Erik Schatzker on Bloomberg Television's "Market Makers." (Source: Bloomberg)
Historically low mortgage rates, improvement in the labor market and pent-up demand are spurring optimism among builders such as Hovnanian Enterprises Inc. (HOV) The recovery in residential real estate shows how record monetary stimulus from Federal Reserve policy makers, who meet today and tomorrow, is bolstering economic growth.
“The underlying demand is improving on strength in the job market and stronger consumer confidence,” said Mark Vitner, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The key for the Fed is seeing a sustainable recovery. As far as housing goes, I think they’re feeling pretty good about that.”
The Commerce Department will issue its housing starts data at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from rates of 875,000 to 1.02 million.
The number of building permits, a proxy for future construction, fell to 975,000 last month from an almost five-year high of 1.01 million in April, according to the median estimate in the Bloomberg survey. The pace of applications exceeds projected starts and points to further gains in homebuilding.
Mortgage Rates
Improving property values and cheaper borrowing costs have encouraged some Americans to buy homes before mortgage rates head even higher. The average rate on a 30-year fixed loan jumped to a 14-month high of almost 4 percent last week from a four-month low of 3.35 percent in early May, according to Freddie Mac data.
Mortgage rates are climbing because of heightened consumer demand for loans, Neil Dutta, an economist at Renaissance Macro Research LLC in New York, said in a note to clients yesterday.
“Interest rates have risen, but they’re still at historic lows,” Robert Niblock, chief executive officer of Lowe’s Cos., the second-largest U.S. home improvement retailer, said yesterday in an interview. The Mooresville, North Carolina-based company’s sales in the second quarter have recovered from March and April when rainy, colder-than-normal weather limited demand, he said.
Builder Optimism
Builders are also gaining confidence. A measure of builder sentiment climbed in June to its highest level since March 2006, according to a report yesterday. The National Association of Home Builders/Wells Fargo’ gauge rose to 52 from 44 in May, according to the Washington-based group.
“A lot of us are expecting that we need 1.6 million to 1.9 million housing starts to keep up withpopulation growth,” Brad G. O’Connor, chief accounting officer at Red Bank, New Jersey-based builder Hovnanian Enterprises, said in a June 13 presentation. “Housing creation shows that we should still have a fair amount of pent-up demand and an ongoing recovery to the housing market, that we’re just in the beginning of that recovery.”
Homebuilder shares have outperformed the broader market. The Standard & Poor’s Supercomposite Homebuilding Index has surged 62 percent in the past 12 months, compared with a 22.1 percent gain in the S&P 500.
The improvement in housing is extending beyond builders, to companies such as Lumber Liquidators Holdings Inc. (LL), a hardwood floor retailer based in Toano, Virginia.
‘Nice Growth’
“We’ve seen some nice growth in our comp stores sales and there is no question that a more positive backdrop is in place,” Daniel E. Terrell, chief financial officer, said in a June 12 presentation. “I think we’re only beginning to see a recovery now.”
Another report today will show the consumer-price index rose 0.2 percent in May after a 0.4 percent decline a month earlier, according the median estimate in a Bloomberg survey. The Labor Department will also release figures at 8:30 a.m. in Washington.
Compared with May 2012, consumer prices may have climbed 1.4 percent after a 1.1 percent year-over-year gain in April that was the smallest since November 2010.
