Housing construction in August surged to its highest level in five months, a dose of encouraging news for the economy's expansion.
The number of housing projects launched by builders clocked in at a seasonally adjusted annual rate of 2-million units, an increase of 0.6 percent from July's level, the Commerce Department reported Tuesday.
The 2-million-unit pace of housing construction registered in August was the highest since March and was better than analysts expected. They were forecasting housing construction to decline last month, in part because of hurricanes and other bad weather in some parts of the country.
"We repeatedly underestimate the vigor and resilience of housing demand," said Steve Stanley, chief economist at RBS Greenwich Capital. "As it turns out, neither wind nor rain nor flooding can keep the homebuilder from completing his or her appointed rounds."
July's housing figures also turned out to be stronger than the government first estimated; housing construction shot up by 9.4 percent to an annual rate of nearly 1.99-million units.
Tampa Bay's homebuilding industry is optimistic even as it recovers from a rainy summer and three hurricanes that have slowed construction. The weather "may have delayed starts, and closings down the road may be delayed a little, but they haven't delayed demand a bit," said Marvin Rose, whose Rose Residential Reports tracks housing permits and closings in the Tampa Bay area. "This market is really constrained by lack of supply. People can't get a project into and out of the ground fast enough to close it."
Demand in this market is such, he said, that "most of the builders I talk to are limiting sales, only releasing three lots a week, so they don't sell out so fast at today's prices when tomorrow's likely will be higher. They're being very aggressive on increasing prices, and physically limiting how many contracts they write." Any starts that were delayed, he predicted, will be made up this month and in October.
At Westfield Homes, Tampa division president David Pelletz said starts in August totaled about 90, down from "well over 100 a month all year." That, he said, was a result of backups in permit offices in Pasco and Hillsborough counties, "the result of a booming market. They're overwhelmed and overloaded."
The delays created by wet weather, including three hurricanes, "will impact our year-end numbers by 5 to 10 percent. We were looking to do somewhere over 1,000 closings. Instead we'll be in the range of 950 to 1,000 closings."
Since the beginning of August, Westfield has limited the homesites it sells, Pelletz said, to control growth and costs and provide better customer service and work flow. "When you sell so quickly and you can't deliver for 12 to 18 months, you don't know how much it's going to cost you to build. This way we manage costs better," Pelletz said.
Continuing job growth, interest rates that top out about 6.5 percent over the next year, and affordable prices compared to the rest of the country are "favorable situations that bode well for our area for solid growth," Pelletz said.
The latest report on housing reinforced Federal Reserve Chairman Alan Greenspan's view that the economy has regained some traction after hitting a soft patch in the late spring.
"I think this is a very good signal that the economy is coming along nicely," said David Seiders, chief economist at the National Association of Home Builders.
Some economists predict home sales will reach record highs for 2004, helped by relatively low mortgage rates. Last week, Freddie Mac reported that average rate on a 30-year mortgage dropped to 5.75 percent, the lowest since the beginning of April.
In Tuesday's report, housing construction went up in all regions of the country in August except for the West. In the South, housing starts increased 1 percent to a pace of 907,000.
The housing and residential construction markets have been good sources of strength for the economy, which grew at a 2.8 percent rate in the second quarter. Economists believed it picked up speed in the current July-to-September quarter, growing at a rate of about 3 percent to 4 percent.
Times Homes editor Judy Stark contributed to this report, which includes information from the Associated Press.