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Economic Watch: Homebuilding Best in Years

August 18, 2015

By Evan Lockridge

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The U.S. housing market continues to improve, with new home starts hitting their highest level in seven years and builder optimism the best in nearly a decade.

While this is good news for flatbed and other trucking operations that haul everything from building supplies to appliances to household goods, it also is leading to increasing speculation as to whether the Federal Reserve will soon hike interest rates.

A new U.S. Commerce Department report shows groundbreaking for new homes last month increased 0.2% from June’s revised level to an annual rate of 1.21 million, sharply higher than the previously reported 1.17 million-unit pace.

Not only is the July figure 10.2% higher than the same time a year ago, this is the best level since October 2007, and the fourth straight month home starts have been above the 1 million per year mark.

Single-family home starts, the lion’s share of the marketplace, increased 12.8% in July from June’s revised figure, hitting its best pace since December 2007. Multifamily home starts fell 17% in July from the month before.

Meantime, figures for the number of new building permits issued, an indicator of future construction activity, were mixed. They dropped 16.3% in July from June but were 7.5% higher than July 2014. The month-to-month drop follows three consecutive months of impressive gains. 

The biggest month-to-month drop happened in the Northeast, which fell more than 60%.

Despite the mixed number for building permits, homebuilders are still expecting good times ahead. Confidence in the market for newly built, single-family homes in August rose one point to a level of 61, according to the National Association of Home Builders/Wells Fargo Housing Market Index

This is the highest reading since November 2005.

“The fact the builder confidence has been in the low 60s for three straight months shows that single-family housing is making slow but steady progress,” said NAHB Chairman Tom Woods. “However, we continue to hear that builders face difficulties accessing land and labor.”

The index measuring buyer traffic rose two points to 45, and the component gauging current sales conditions rose one point to 66. The index charting sales expectations in the next six months held steady at 70.

“Today’s report is consistent with our forecast for a gradual strengthening of the single-family housing sector in 2015,” said NAHB Chief Economist David Crowe. “Job and economic gains should keep the market moving forward at a modest pace throughout the rest of the year.”

The big question on many minds is, what do these latest numbers mean when it comes to the Federal Reserve and its talk of increasing interest rates this year? The July Federal Open Market Committee meeting offers some insight.

“If in fact the Fed was gearing up to raise rates next month, July would have offered the perfect opportunity for officials to indicate an increased assessment of the economy, as well as growing confidence in further momentum for economic activity near-term,” said Lindsey Piegza, chief economist at Stifel Fixed Income. “Of course, as we know, the Fed maintained their ‘moderate’ assessment of the economy in July, a lateral move from June's characterization. We will be combing through the minutes [to be released Wednesday] looking for any indication of a shift in sentiment or growing concerns regarding domestic or international underperformance.”

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