Housing starts rise to nine-month high

Housing starts rose 1.5 percent to a 598,000 annual rate in August, the U.S. Commerce Department announced Thursday, continuing a nearly year-long trend of improving home-building fundamentals.

Economists surveyed by Bloomberg News had expected housing starts to total a 600,000 annualized rate in August. Housing starts totaled a revised 581,000 annual pace in July. In August, building permits rose 2.7 percent to 579,000 -- the metric's highest level since November 2008.

However, all of August's housing-start gains occurred in the multi-family sector; single family starts declined 3 percent to 479,000. Meanwhile, single family completions fell 1.6 percent to 489,000.

Investors should keep in mind that any increases in the housing sector activity stems from a very low point with depressed construction levels, following the nation's worst housing recession in more than a generation. For example, total housing starts are still down 29 percent in the past 12 months.

Economists follow the housing start statistic because of the large role residential real estate has played historically in the U.S. economy. Housing affects commerce in companion sectors, such as furniture, appliances, insurance, and landscaping, among others. Hence, a sustained increase in housing starts usually puts upward pressure on U.S. GDP.

Housing Analysis: The rise in housing starts shows continued improvement in the nation's housing sector, and the pace of building activity appears to be accelerating. Even so, investors should not ignore the housing sector's other fundamentals which, after a nearly three-year downturn, still show an overall weak sector.

Further, another wave of mortgage rate resets could increase the foreclosure rate, adding more supply to the market, and if that occurs, builders might scale back once again.
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