WASHINGTON - Housing starts in October unexpectedly climbed to a four-year high, indicating further improvement in U.S. residential construction.
Starts rose 3.6 percent to a 894,000 annual rate, the fastest since July 2008 and exceeding all estimates in a Bloomberg survey, Commerce Department figures showed Tuesday.
The median estimate of 82 economists called for starts to fall to a 840,000 pace. Building permits, a proxy for future construction, eased after surging the previous month. Half the estimates were higher than the median, and half lower.
Record-low mortgage rates and a lower risk that property values will keep falling may continue to attract buyers, giving the economy a lift and benefiting companies such as Toll Brothers Inc. Federal Reserve Chairman Ben Bernanke is among policymakers who have singled out housing as one of the industries to nurture in order to spur the economic recovery.
“Housing is absolutely going in the right direction,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York, who projected 870,000 starts at an annual rate. “Excess supply has been wound down and there’s a steady increase in demand. That’s good for construction.”
The Commerce Department, in a statement accompanying the data, said Superstorm Sandy had a “minimal” effect on estimates of new residential construction for October. The agency indicated the number of “non-responses” to its building permits survey was “not significantly higher than normal.”
Estimates for starts in the Bloomberg survey ranged from 780,000 to 873,000. The prior month was revised to 863,000 from a previously reported 872,000 pace.
Permits decreased 2.7 percent to an 866,000 annual rate from 890,000 in September. They were projected to fall to 864,000, according to the survey median. The drop in October permits reflected fewer applications for multifamily construction, while those for one-family units rose to the highest level since July 2008.
Construction of single-family houses eased 0.2 percent to a 594,000 rate from 595,000 the prior month.
Work on multifamily homes, such as and apartment buildings, jumped 11.9 percent to an annual rate of 300,000.
Two of four regions had an increase in starts in October, led by a 17 percent surge in the West, Tuesday’s report showed. In the Midwest, new construction rose 8.9 percent. Starts dropped 6.5 percent in the Northeast and 2.5 percent in the South.
Sandy made landfall on Oct. 29, indicating a bigger effect is more likely to be in the November data, according to UBS economists. In many cases, the rebuilding of damaged homes may be extensive enough to constitute a new start, and construction may rise in later months as the region recovers, they said.
The share of the affected area in the Northeast of all housing activity is small by comparison, with an estimated 60,000 permits issued in 2011, or less than 10 percent of the U.S. total, they estimated.
Data this week reinforced signs of a pickup in residential real estate. Purchases of previously-owned houses rose 2.1 percent in October to a 4.79 million annual rate, exceeding the median forecast of economists surveyed by Bloomberg, the National Association of Realtors reported. Inventories dropped to the lowest level in almost a decade.
The National Association of Home Builders/Wells Fargo index of builder confidence climbed in November to a six-year high of 46, the Washington-based group said yesterday. The group’s gauge of current single-family home sales advanced to the highest level since May 2006 as it jumped by the most since September 2002.
Toll Brothers, the Horsham, Pa.-based luxury homebuilder, is among companies saying the market probably will keep improving.
“We’re in a strong phase of the recovery,” Martin Connor, chief financial officer, said during a conference presentation Nov. 15. “It’s a function of five years of pent-up demand being released,” and “affordability and rising prices is also spurring people to buy.”
Low borrowing costs and cheaper properties indicate home buying is coming within reach of more Americans. The average rate on a 30-year fixed mortgage dropped to 3.34 percent in the week ended Nov. 15, the lowest in records dating to 1971, according to McLean, Va.-based Freddie Mac.
“Continued weakness in housing – reflected in falling prices, low rates of new construction, and historic levels of foreclosure – has proved a powerful headwind to recovery,” Bernanke said in a Nov. 15 speech in Atlanta. “It is encouraging, therefore, that we are seeing signs of improvement in the housing market in most parts of the country.”
Chris Middleton in Washington contributed to this story.