Ahead of the Bell: US home construction

US housing starts likely increased in September

Associated Press
US homebuilding slows in August after hot streak

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In this Monday, Aug. 17, 2015 photo, a builder works on the site of the Landmark community, a group of condos and townhouses built by Lennar Homes, in Doral, Fla. The Commerce Department reports on U.S. home construction in August on Thursday, Sept. 17, 2015. (AP Photo/Lynne Sladky)

WASHINGTON (AP) -- The Commerce Department reports on September U.S. home construction Tuesday at 8:30 a.m. Eastern.

SALES DROP: Economists expect that housing starts last month rose 2.1 percent to a seasonally adjusted annual rate of 1.15 million, according to a survey by data firm FactSet. Builders are breaking ground on fewer homes after starts peaked in June at 1.21 million, which was the highest level since the start of the Great Recession in late 2007.

HOUSING HITS PLATEAU: Real estate appears to have crested for the moment. New construction and sales of existing homes have surged in the first half of the year as more Americans found work. But rising prices and the absence of meaningful wage growth have capped growth as affordability becomes an issue for more would-be buyers and renters.

Housing starts have soared 11.3 percent in the first eight months of 2015. But the pace of building retreated from the June apex in July and August, in part due to the expiration of tax incentives for developers in New York.

Sales of existing homes similarly accelerated through the start of the summer, only to decline in August. The tight inventories — just 5.2 months' supply of homes were listed for sale — have propped up prices, as the median cost to buy a home increased 4.7 percent over the year to $228,700, according to the National Association of Realtors.

A greater share of the country is also choosing to rent. The percentage of Americans owning homes has dipped to 63.4 percent, the lowest level in 48 years. The influx of millennials and downsizing baby boomers into the rental market has caused monthly leases to jump 3.8 percent over the past year, according to the real estate firm Zillow.

But price appreciation has also slowed as many Americans lack the income to spend more on housing. Average hourly earnings have increased just 2.2 percent to $25.09, meaning that home values and rental costs are rising at roughly double the rate of incomes.

There are signs that more Americans are renovating their homes instead of buying new properties. A new index compiled by BuildZoom — which identifies contractors for projects— found that renovations are running 2.8 percent above their 2005 level, while new home construction despite the gains of the past year remain 57 percent below its 2005 level during the housing bubble.

Still, remodeling activity has been flat during the past year as new home construction has advanced. The gains have left construction firms more optimistic.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose this month to 64. The last time the reading was higher was October 2005 at 68.

Readings above 50 indicate more builders view sales conditions as good rather than poor. The index has been consistently above 50 since July last year.

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