Residential starts climbed 12.3% to a 1.36 million annualized rate after an upwardly revised 1.22 million pace in the prior month, according to government figures released Wednesday that topped all estimates in Bloomberg’s survey. Permits, a proxy for future construction, also increased to a 12-year high.
Low mortgage rates and a solid labor market are helping to support sales, prompting a pickup in construction activity and permitting. The figures indicate residential construction, which hasn’t contributed to economic growth since the end of 2017, may be starting to break out of a prolonged slump.
At the same time, uncertainty about the economy, a shortage of labor and lots, and higher materials costs due to tariffs represent challenges for builders and price-conscious buyers.
The report is consistent with private data out Tuesday that showed sentiment among homebuilders rose in September to the highest in nearly a year, helped by increased optimism about the current sales environment.
Single-family starts rose 4.4% to a 919,000 annualized pace, the strongest since January. Permits increased 4.5% to 866,000, the most since July 2018.
Homebuilder shares rose, reversing an earlier decline. The S&P 500 Index slumped after FedEx Corp. slashed its profit outlook.
Three of four regions posted starts increases in August, powered by strongest rate of homebuilding in the Midwest since May 2018. Starts in the South were the highest since January, while building permits in the nation’s largest region advanced to a 12-year high.
The median forecast in a Bloomberg survey of economists called for housing starts at a 1.25 million annualized rate.
The report, produced jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, has a wide margin of error, with a 90% chance that the headline figure was between a 2.1% gain and 22.5% surge.