U.S. Housing Starts Surge 10.5% in August, Providing Hope Sector Is Stabilizing

Realtors, economists and home-sellers alike are hoping August's unexpected 10.5% surge in housing starts, to a 598,000 annual rate, represents the beginning of a sustained uptrend in home building -- or at least a new foundation for eventual growth.

Economists in a Bloomberg survey had expected housing starts to rise to a 550,000 annual rate in August, following a revised 541,000 annual rate in July, down from the previously-released 546,000 annual rate. Starts totaled a 539,000 rate in June and hit a cyclical-low 477,000 annual rate in April 2009.

Housing starts are now up 2.2% on a year-over-year basis. That's a relatively weak improvement, given the sector's depressed housing start level, but better than the 7% a year-over-year decline recorded in July.

In August, housing starts increased in three of four regions: up 21.7% in the Midwest, 7% in the South, and 34.3% in the West. They fell 24.3% in the Northeast,

Building permits -- considered a leading indicator of residential construction -- rose 1.8% to a 569,000 annual rate.

August Data: Sign Of Sector Stabilization?

Economists follow the housing starts 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.

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August's unexpected rise in housing starts represents a modest point of evidence for the economic bulls. It's modest because: 1) it's only one month, downward revisions can occur and it takes several months for a trend to form; and 2) activity in the housing sector is still at a low level. It will have to register several quarters of double-digit gains to return to normal levels that have juiced U.S. GDP in the past.

Even so, August's gain offers hope that homebuilding is starting to stabilize -- or form a bottom, in economic parlance. If, at minimum, that stabilization persists in the months ahead, that would represent progress.