Construction of New Homes Is Rising, With Demand Not Likely To Wane Soon

Neither Hurricane Katrina nor rising mortgage rates slowed the housing market in America last month, as construction of new homes unexpectedly increased.Builders broke ground on 2.108 million housing units at an annual rate in September, up 3.4% from a revised 2.038 million pace for August that was faster than previously reported, the Commerce Department said yesterday in Washington. Building permits, a sign of future construction, rose to a 2.189 million rate, the fastest since February 1973.The number of homes authorized and awaiting construction increased to the highest level since 1979,indicating backlogs will support homebuilding and the economy in the coming months, economists said. Mortgage applications increased last week and stayed close to an all-time high, a separate report showed.“Demand remains incredibly robust,” the chief economist at Quicken Loans, Bob Walters, said in an interview. “Housing activity in the rest of the country was very robust, and the destruction in the Gulf states just wasn’t enough to move the needle downward.”Livonia, Mich.-based Quicken is the nation’s largest online mortgage lender, according to National Mortgage News.Construction increased even in the South, where both Katrina and Hurricane Rita made landfall. A start is only counted by the Commerce Department if a damaged home is razed and a new one is put up on the existing foundation. Starts are captured only if a permit is issued for new construction rather than for renovation, according to the government’s Web site.The average rate on a 30-year fixed mortgage rose to 5.91% in the last week of September, according to Mclean, Va.-based Freddie Mac, the second-biggest purchaser of American mortgages. The average rate reached a 40-year low of 5.21% in 2003.“Any way you slice it, the report suggests homebuilding is holding up quite well, and it will continue to be strong until we see a significant rise in mortgage rates,” the chief U.S. economist at Barclays Capital, Dean Maki, said. “There’s no evidence that a peak has been reached in the housing market.”At the current rate, 2.067 million homes will be started this year, which would be the most since a record 2.357 million in 1972, according to calculations by Bloomberg News. Last year, 1.96 million homes were started.Applications for home purchases jumped 7.3% last week, according to a report earlier yesterday by the Mortgage Bankers Association. The bankers group said its index rose to 503.9, close to a record of 529.3 that was reached in June.Economists predicted housing starts would fall to a 1.97 million annual rate last month, the median of 58 forecasts in a Bloomberg News survey, from the 2.009 million rate initially reported for August.Permits were forecast to fall to a 2.075 million annual rate, from 2.138 million in August. The rate of permits has been outpacing that of starts since March, suggesting either that companies aren’t able to build homes fast enough to keep up with demand or that builders are cautious about starting homes that don’t have buyers, economists said.Investors’ concern about the outlook for housing at a time when Federal Reserve policy makers are forecast to keep raising interest rates has weighed on homebuilders’ stocks. The Standard & Poor’s Super composite Homebuilding index, made up of the stocks of 16 builders including Lennar, fell about 28% since reaching a high this year in late July.Backlogs, or construction that was authorized but not yet begun, rose 0.8% to 235,300 units, the highest since May 1979, yesterday’s report showed. They are 15.5% higher than in September 2004, which suggests homebuilding will stay strong in coming months.New construction of single-family homes rose 2.6% last month to a 1.747 million-unit pace, the fastest since February. Starts of townhouses, apartments, and other multifamily dwellings rose to a 361,000 annual rate from 335,000 in August.“Multifamily housing is very strong, which sort of indicates to me that maybe more investors are coming into the market,” the founder and president of American Mortgage Group in Manhasset, N.Y., Bob Moulton, said.Starts rose in two of four regions. They increased 6.9% in the South to a 981,000-unit annual rate and 1.9% in the Midwest to a 368,000 pace. Starts were unchanged in both the Northeast and West at 198,000 and 561,000, respectively.The number of houses already under construction last month increased 0.6% to 1.367 million. Housing completions rose 3.2% to 1.979 million. Single-family completions increased 4.2% to 1.68 million.The president of the Federal Reserve Bank of Philadelphia, Anthony Santomero, said recently that he expects a “stabilization” in home prices as the cost of credit rises.At the same time, housing demand is unlikely to plunge because an improving labor market is giving buyers more money to purchase homes, and interest rates are still within a percentage point of the four-decade low 5.21% reached in June 2003.D.R. Horton, the biggest American homebuilder by market value, said last week that net sales orders for the year ended September 30 grew 28% from a year earlier to a record $14.6 billion. The high rate of order backlogs, or construction awaiting completion, suggests sales will be strong this fiscal year as well, the chairman of the the Fort Worth, Texas based company, Donald Horton, said in a statement.New home sales will reach 1.29 million this year, up from 1.2 million in 2004, according to a forecast from the National Association of Realtors, an industry trade group.

Construction of New Homes Is Rising, With Demand Not Likely To Wane Soon

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