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Ahead of the Bell: US home construction

September 20, 2016

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

SLIGHT PULLBACK: Economists believe housing starts dipped 0.9 percent to a seasonally adjusted annual rate of 1.19 million last month. Starts reached the healthy annual pace of 1.21 million in July, the strongest performance in six months.

STRENGTH IN NUMBERS: Building activity has picked up this year as steady job gains and low mortgage rates propel more Americans to seek out homes. Starts have increased 6.7 percent in 2016, with single-family houses leading the way. The rebound has been held in check by rising land and labor costs, leading many economists to project a sustained period of construction because demand is so strong.

In the short term, builders have relatively few properties in the pipeline. Authorized permits slipped 0.1 percent in July to an annual rate of 1.15 million — which is lower than pace of new construction.

Yet job growth has pushed the unemployment rate down to just 4.9 percent. Hiring usually corresponds with increased permits for single-family houses. And low mortgage rates have added to the momentum. Also, the average 30-year fixed-rate mortgage was 3.50 percent last week, according to mortgage buyer Freddie Mac. That average is near record lows and significantly below the historic average of 6 percent.

THE ROAD AHEAD: In that environment, confidence among homebuilders climbed the highest level in nearly a year, reflecting a brighter outlook for sales now and into 2017. The National Association of Home Builders/Wells Fargo builder sentiment index released Monday climbed six points this month to 65 following a downwardly revised reading of 59 in August.

There appears to be more room to run.

An analysis released Monday by the National Association of Realtors found that home construction lags the rate of job growth in 80 percent of metro areas, including New York City, Dallas, San Francisco, Miami and Chicago. And annual housing starts are still below the 25-year average of roughly 1.3 million, even after having rebounded from the depths of the housing crash that triggered a recession nearly nine years ago.

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