Economic Report: Apartments lead Septembers housing-starts growth

WASHINGTON (MarketWatch) The pace of home construction climbed last month on a jump in apartment building, according to government data released Friday.

Construction started on new U.S. homes rose 6.3% in September, with the annual rate hitting 1.02 million, following a sizable August drop. Septembers starts rate matched the consensus forecast from economists polled by MarketWatch.

Signaling a continuation of the markets rebound, the pace of total home-building starts was up 17.8% from the year-earlier period. However, the starts rate is far below an average of 1.5 million over the 20 years leading up to a bubble peak.

Analysts warn against reading too much into a single months report. A confidence interval of plus or minus 9.3% for Septembers overall starts growth shows the government isnt sure whether the pace of construction rose or fell last month.

One factor that could help support the housing market a bit is the recent drop in mortgage rates, which makes loans cheaper for prospective borrowers. However, low mortgage rates alone wont be enough to spur more housing activity, experts say.

Rather, strong and consistent jobs growth is needed for a sustained pick up in home building and buying. Otherwise, the pace of the household formation will remain slow, with families and friends doubling up in homes to save money.

Apartments led construction growth in September, but economists prefer to see more building of single-family homes. Putting up a single-family homes costs more and creates more jobs than building one apartment. The construction pace for single-family homes rose 1.1% in September, while apartment starts in buildings with at least five units zoomed up 18.5%, the government reported.

The details of the construction data...dont make us feel any more positive about the single family segment of the housing market, which continues to plod along at a frustratingly slow pace, Richard Moody, chief economist at Regions Financial Corp., wrote in a research note.

For each apartment start during September in a building with at least five units, there were about 1.8 single-family-home starts. That ratio is far lower than a long-term average of about 3.4, and down from about 2.1 a year earlier. As home builders increasingly turn toward apartments, that will narrow the housing sectors contribution to the economy.

A gauge of the outlook for construction also showed more growth for apartments. The annual pace of permits for new construction, a sign of future demand, inched up 1.5% to 1.02 million in September from 1 million in August. Permits for single-family homes declined 0.5% in September, while permits in buildings with at least five units rose 7%.

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Economic Report: Apartments lead Septembers housing-starts growth