U.S. home construction unexpectedly accelerated in July to the fastest pace in five months, indicating the housing industry remains an area of support for the economy.
Residential starts increased 2.1 percent to a 1.211 million annualized rate, exceeding all forecasts in a Bloomberg survey, from 1.186 million in June, Commerce Department data showed Tuesday in Washington. Permits, a proxy for future construction, were little changed.
Builders are responding to the strongest home sales since the start of the economic expansion, made possible by robust hiring and cheap financing. More houses were under construction last month than at any time since the beginning of 2008, indicating homebuilders were making headway in filling orders.
“Job growth is still the key driving indicator, but it’s still also low mortgage rates, as well as lending standards that are a bit easier in residential as a whole,” Anika Khan, a senior economist at Wells Fargo Securities LLC in New York, said before the report. “The fundamentals look sound for the housing market.”
The pace of housing starts is the second-fastest of the expansion behind the 1.213 million in both February and June 2015. The median forecast in a Bloomberg survey called for a 1.18 million rate. Estimates ranged from 1.11 million to 1.2 million.
The starts data, while very volatile from month to month, have held in a narrow range over the past year, indicating residential real estate will have trouble adding to its post-recession rebound. Still, the report showed a wide range for error, with a 90 percent chance that last month’s figure fell between a 6.7 percent decline and a 10.9 percent gain.
Permits were little changed at 1.15 million annualized rate in July, indicating there was less scope for additional gains in housing starts in coming months.
What’s more, builders already had more homes under construction in July than at any time since January 2008. The number of multifamily dwellings with five or more units under construction reached the highest level since October 1974.
Construction of single-family houses rose 0.5 percent to a 770,000 rate, also the most since February.
Groundbreaking on multifamily homes, such as townhouses and apartment buildings, increased 5 percent to an annual rate of 441,000, the most since September.
Starts rose in three of four regions, paced by a 3.5 percent gain in the South and a 2.3 percent increase in the Midwest. Construction was up 15.5 percent in the Northeast and down 5.9 percent in the West.