Permits for home construction in the United States recently rose to their highest levels in 5 1/2 years suggesting the outlook for the housing market remains positive.
These findings come not that long after the federal government remained shutdown over budget fights and interest rates that have steadily been rising. The number of new people applying for new construction projects is up 6.2% from the previous year to a 1.03 million annualized rate.
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Health of the Housing Market
Economists have been quick to endorse the findings of the report. They are certainly welcome news for many investors who were fearful that home purchases would fall substantially as higher mortgage rates pushed some people away from buying.
“These reports are unequivocally in line with our view that the housing recovery remains well on track, as the lack of supply will continue to support both construction activity and house prices,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.
Another report shows that the S&P/Case Shiller composite index of 20 metropolitan areas rose by 13.3% in September from where it was just one year ago. The S&P/Case Shiller composite index is the leading measure of U.S. residential real estate prices. This was the largest increase that has been recorded since February of 2006.
One of the driving factors that continues to push home construction is the formation of new large households. For example, permits in the multi-family home sector rose by as much as 15.3% in October and 20.1% in September. By contrast, permits for single family homes rose by a modest 0.8% in the month of October.
Impact on the Federal Reserve
Some economists are afraid that the positive news from new construction and higher retail sales increase the likelihood that the Federal Reserve will finally start to pull back on its massive stimulus program.
If you’re thinking that this news sounds familiar, then you’re probably right. It’s become something of a pastime for economists to speculate about how long the Fed will support its stimulus spending. After almost every jobs report which shows signs of positive economic growth, speculation about the Fed’s policies took place.
That speculation reached its height this past September when most people were ready to take it for granted that the Federal Reserve would taper its bond buying program. But that didn’t actually happen. Instead, the program was continued without any tapering whatsoever. And that could continue well into the next year.
While past events never perfectly predict what will happen in the future, it’s important to notice that we’ve been here before. The next time that Fed policy makers are scheduled to meet is on Dec 17-18. That summit will likely give greater insight into what the Fed will do in the future than most of the speculation that seems to follow positive or negative economic indicators.
Regardless of what the Federal Reserve does, the economic indicators out thus far remain positive. They paint a picture of a housing market which is still recovering, but certainly not stalling by any means.
