WASHINGTON - U.S. builders started work on more homes in August, driven by the fastest pace of single-family home construction in more than two years. The increase points to steady progress in the housing recovery, and home sales are at their highest in two years.
The Commerce Department said Wednesday that construction of homes and apartments rose 2.3 percent to a seasonally adjusted annual rate of 750,000 last month. That's up from 733,000 in July, which was revised lower from last month's initial estimate.
Single-family housing starts rose 5.5 percent to an annual rate of 535,000 homes, the best pace since April 2010. Apartment construction, which can be volatile from month to month, fell 4.9 percent.
Applications for building permits, a good sign of future construction, fell to an annual rate of 803,000. Still, that's down from a four-year high of 811,000 in July, which was revised higher.
The rate of home construction has risen nearly 60 percent since hitting a recession low of 478,000 in April 2009. It's still half the pace considered healthy. But the steady gains suggest the housing recovery could endure.
"Housing is clearly in a recovery mode," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics. He said home construction should add about 0.3 percentage point to overall economic growth this year.
The broader economy may also benefit from recent and more sustainable gains in home prices. When that happens, Americans typically feel wealthier and spend more. Consumer spending drives 70 percent of the economic growth.
The August gains in housing starts were uneven across the country. They were led by a sharp 20.7 percent increase in new construction of homes and apartments in the Midwest. Starts also rose 3.7 percent in the South. But they fell 12.6 percent in the Northeast and 4.3 percent in the West.
Confidence among builders rose in September to the highest level in more than six years, according to a survey released Tuesday by the National Association of Home Builders/Wells Fargo. And builders are more confident that sales will improve over the next six months, the survey noted.
Sales of both new and previously occupied homes are running ahead of last year. Home prices are increasing more consistently, in part because the supply of homes has shrunk and foreclosures have eased. And mortgage rates remain near record lows, a strong enticement for potential buyers with good credit.
Even with the gains, the housing market remains weak. Many would-be buyers are having difficulty qualifying for loans or can't afford the larger down payments being required by banks.
Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the NAHB's data.
The Federal Reserve last week announced new stimulus measures intended to keep mortgage rates low for the next few years.
Fed Chairman Ben Bernanke said the bank would purchase $40 billion of mortgage-backed securities each month until the job market improves "substantially." That could push down longer-term interest rates and spur more borrowing and spending.
The Fed also hopes that lower mortgage rates will accelerate the housing market recovery and boost home prices. That, in turn, could make people feel wealthier and more willing to spend, which would bolster economic growth.
A jump in sales of previously occupied homes and further gains in home construction suggest the U.S. housing recovery is gaining momentum.
Sales of previously occupied homes rose 7.8 percent in August from July to a seasonally adjusted annual rate of 4.82 million, the National Association of Realtors said Wednesday. That's the highest level since May 2010, when sales were aided by a federal home-buying tax credit.
At the same time, builders broke ground on 2.3 percent more homes and apartments in August than July. The Commerce Department said the annual rate of construction rose to a seasonally adjusted 750,000. The increase was driven the best rate of single-family home construction since April 2010.
The pair of reports comes amid other signs of steady progress in the housing market after years of stagnation. New-home sales are up, builder confidence is at its highest level in more than six years and increases in home prices appear to be sustainable.
"The U.S. housing recovery is for real," said Sal Guatieri, an economist at BMO Capital Markets, in a note to clients. "Great affordability, pent-up demand and strong investor interest in rental units are driving the market."
The broader economy is also likely to benefit. When home prices rise, Americans typically feel wealthier and spend more. Consumer spending drives 70 percent of the economic growth.
And the Federal Reserve's plan to spend $40 billion a month on mortgage-backed securities to keep mortgage rates low "can only help," Guatieri added.
Still, home sales and housing starts are rising from depressed levels. Sales of previously occupied homes remain below the more than 5.5 million that economists consider consistent with a healthy market.
The number of first-time homebuyers, who are critical to a housing rebound, slipped to 31 percent from 34 percent. In a typical market, that figure is usually closer to 40 percent. Strict credit standards are making it harder for many first-time buyers to qualify for mortgages.
More Americans appear to be taking advantage of near-record low mortgage rates and prices that are, on average, much lower than they were six years ago.
Sales might be higher if more homes were available, the Realtors' group said. The limited supply is helping to lift prices. There were 2.47 million homes available for sale in August. It would take just over six months to exhaust that supply at the current sales pace. That's the typical pace in a healthy market.
Homes are selling more quickly than a year ago. The median amount of time that a home spent on the market was 70 days in August, the Realtors' group said. A year ago, the median timeframe was 92 days a year ago.
The median home price dipped in August to $187,400, but that is 9.5 percent higher than August 2011. That's the largest year-over-year price increase since January 2006.
One reason for the price gain is that sales of foreclosed homes and so-called short sales have declined. A short sale is when the seller owes more on the mortgage than the home is worth. Both foreclosure and short sales occur at steep discounts and can drag down overall home prices.
The lower supply of homes has boosted demand for new homes, which has made builders more confident in future sales.
Applications for building permits, a good sign of future construction, dipped in August to an annual rate of 803,000. Still, permits reached a four-year high of 811,000 in July, which was revised higher.
"Since builders are not taking out permits because it is fun to visit their local government office and pay fees, we can conclude that there should be a solid rise in construction in the months to come," said Joel Naroff, chief economist for Naroff Economics Advisors.
Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said home construction should add about 0.3 percentage point to overall economic growth this year.
"Housing is clearly in recovery mode," Sullivan said.