November 26, 2013 / 1:34 PM / 6 years ago

U.S. housing permits breach 1 million mark, home prices surge

WASHINGTON (Reuters) - Permits for future U.S. home construction rose to their highest in nearly 5-1/2 years in October and prices for single-family homes notched big gains in September, suggesting a run-up in mortgage interest rates has not derailed the housing recovery.

Single family homes for sale are seen in San Marcos, California October 25, 2013. REUTERS/Mike Blake

The data releases on Tuesday were the latest signs of strength in the economy, despite headwinds from last month’s budget fight, which led to a partial government shutdown, and rising mortgage rates.

“These reports are unequivocally in line with our view that the housing recovery remains well on track, as the lack of supply will continue to support both construction activity and house prices,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

Building permits jumped 6.2 percent to a seasonally adjusted annual rate of 1.03 million units, the highest since June 2008 and beating economists’ expectations for a 930,000-unit rate.

Permits, which lead housing starts by at least a month, increased 5.2 percent in September and were up 13.9 percent from a year ago.

A separate report showed the S&P/Case Shiller composite index of 20 metropolitan areas increased 13.3 percent in September from a year ago, the strongest gain since February 2006. Prices were up 0.7 percent in August.

Some economists said the housing data, combined with stronger-than-expected October nonfarm payrolls and retail sales reports, raised the risk the Federal Reserve could scale back its massive monthly bond purchases as early as December.

The U.S. central bank noted at last month’s meeting that the recovery in the housing sector had slowed somewhat in recent months. Fed policymakers next meet on December 17-18.

While permits are not counted in gross domestic product (GDP), they are a key indicator of economic activity and the sturdy gains in both September and October should ease concerns the housing market recovery was stalling.

Higher mortgage rates have slowed the pace of home sales, but demand for accommodation as household formation continues to recover from multi-decade lows is expected to keep supporting residential construction.

Home resales fell in October for a second straight month and confidence among single-family home builders has ebbed somewhat since nearing an eight-year high in August.

Permits for the multifamily home sector surged 15.3 percent in October after increasing 20.1 percent in September. Permits for buildings with five units or more reached their highest level since June 2008.

Single-family home permits, the largest segment of the market, increased 0.8 percent after falling 1.9 percent in September.

Last month, there were strong increases in permits in the West and also the South, where permits were the highest since January 2008. They fell in the Midwest and were flat in the Northeast.

The department postponed the release of figures on housing starts and completions for September and October until December 18 because the collection of data was affected by the 16-day shutdown of the government last month. November data also will be published at that time.

The partial shutdown of the federal government also delayed the publishing of the September and October permits reports.

Reporting By Lucia Mutikani, additional reporting by Rodrigo Campos in New York; Editing by Andrea Ricci and Krista Hughes

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