Economy: More Good News as Housing Starts Rate Surges
The rate of groundbreaking on new homes accelerated in September to its fastest pace since before the economic recession, according to numbers released by the U.S. Commerce Department Wednesday.
Housing starts grew 15 percent last month, the biggest increase the housing market has seen in over four years. The surge brought the seasonally adjusted annual rate to 872,000 units and serves as an encouraging sign that the struggling housing market is finally on the road to recovery. Analysts had projected the annual rate would come in at 810,000 units.
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“One of the big headwinds for the economy has been the weak housing market and this indicates that headwind has dissipated,” said Wells Fargo Advisers economic strategist Gary Thayer.
The good news on the housing front should bolster the U.S. economy at large, which has enjoyed a number of positives in recent weeks, including a sharp drop in unemployment and increased consumer spending.
Economic growth continuing to improve will likely aid President Obama in his push for reelection. Obama has taken his share of blows from Republican challenger Mitt Romney on his inability to create jobs in this country. However, experts estimate that for each new house constructed, three new jobs are created.
While the housing starts data is particularly volatile and subject to substantial revisions, the positive signs should not be ignored. Groundbreaking on single-family homes rose 11 percent to its highest rate since August 2008, and multi-family home starts jumped 25.1 percent.
“Things are lining up for housing and housing is likely to contribute to GDP growth this year,” said John Canally, an economist at LPL Financial. “It’s another step in the right direction, but you still have a long, long way to get back to ‘normal’ in housing.”
For perspective, if housing does indeed contribute to GDP growth this year, it will be the first time it has done so since 2005.
With this housing news investors should be sure to keep tabs on ETF prices that are likely to be affected, including the iShares Dow Jones U.S. Real Estate Index Fund (NYSEARCA:IYR) and SPDR S&P Homebuilders (NYSEARCA:XHB). The former was most recently trading at $64.62 per share on Wednesday morning, while the S&P Homebuilders ETF price was up 2.64 percent to $26.06 per share.