Homebuilding makes steady improvement

WASHINGTON – Builders are putting up more houses than they have in nearly four years, a long-awaited recovery that could help energize the U.S. economy.

From areas like Phoenix that are finally arising from the housing bust to Chicago and Minneapolis, where strong economies have lifted demand, the outlook for homebuilding looks healthier than at any time since sales and prices collapsed in 2007.

“We’ve been hoping for this for a long time,” said Celia Chen, a housing economist at Moody’s Analytics. “It looks like things are turning.”

The improvement has been gradual. But builders are responding to interest from buyers drawn by reduced prices, record-low mortgage rates and rising rents, which have made home purchases comparatively appealing. And the supply of new homes has shrunk to near-record lows.

The increased construction coincides with stronger homebuilder confidence and higher stock prices for building companies. The stocks of the 13 U.S. builders whose shares are publicly traded have increased an average 60 percent this year. By contrast, the Standard & Poor’s 500 stock index is up about 9 percent.

Last month, U.S. builders broke ground on the most homes in nearly four years. Building of single-family homes – the bulk of the market – rose for a fourth straight month. Permits to build single-family homes reached their highest point since March 2010.

The news helped boost stock prices Wednesday. The Dow Jones industrial average closed up 103 points.

Home construction still has a long way to go. June’s seasonally adjusted annual rate of 760,000 is the highest since October 2008. But it’s only about half the 1.5 million annual pace that economists consider normal.

From the depth of the housing bust in April 2009, when the seasonally adjusted annual rate bottomed at 478,000 homes, the improvement has been slow but steady.

Building increased in early 2010 as the government’s tax credits for homebuyers lifted sales. Beginning that summer, the pace essentially stalled until late 2011, when it began rising gradually.

A continued resurgence would benefit an economy weakened by tepid job growth and sluggish consumer spending. A healthy pace of 1.5 million new homes a year would create about 50,000 additional jobs a month and lower the unemployment rate by about 1.5 percentage points, according to calculations by Joel Prakken of Macroeconomic Advisers. About half the new jobs would be construction workers and contractors; the others would be in related industries, like shipping and building materials.

The stepped-up construction would also add roughly a half percentage point to annual economic growth, Prakken estimates.

Economists at IHS Global Insight, a consulting firm, caution that they don’t foresee starts reaching 1.5 million a year until 2015. At the current lower levels, home construction will likely have only a modest effect on the economy.

New homes represent only about 20 percent of homes sold. Previously occupied homes were sold in May at a seasonally adjusted annual rate of 4.55 million. But each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to data from the homebuilders association.

In its report Wednesday on home construction, the Commerce Department noted that the gains in single-family homebuilding were broad-based: Housing starts rose in every U.S. region in June, led by the West.

The housing market is improving even while the rest of the economy has weakened. Federal Reserve Chairman Ben Bernanke highlighted that gain in an otherwise gloomy report to Congress on Tuesday and Wednesday. Many economists say housing construction could contribute to overall economic growth this year for the first time since 2005.