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Fed’s fingerprints all over U.S. home starts

U.S. housing starts shot up 15 per cent in September to an annual rate of 872,000, more than 100,000 above the consensus estimate.

JOSHUA LOTT/REUTERS

The latest U.S. housing numbers are certainly a welcome sign that this crucial segment of the U.S. economy is at least stabilizing. Starts shot up 15 per cent in September to an annual rate of 872,000, more than 100,000 above the consensus estimate, 34.8 per cent higher than a year earlier and the best total in more than four years. Building permits also came in considerably higher at 894,000 annually, an 11.6 per cent jump from the previous month and 45.1 per cent more than a year earlier.

It may be too early to get out the balloons and noisemakers, but starts are a good indicator of both the level of consumer confidence and the willingness to act on that confidence.

Which brings us to the Fed's monetary policies, which are plainly helping on both counts – both aggressive quantitative easing (via the purchase of mortgage sercurities) and essentially a guarantee that interest rates will stay at rock-bottom levels well into the future. Slowly declining supply and rising demand from an increasing population are also positive signs. But to put the numbers in perspective, it's worth remembering that housing starts at the height of the bubble exceeded 2.3 million annually and then plunged below 700,000 for the next three years. At their nadir, the annual number skidded below 600,000 – a 60-year low.

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No one expects the market to come anywhere near its pre-recession bubble numbers, but the current data indicates that a recovery is now under way. Still, it's worth noting the surge in multi-family dwellings, which in part reflects increased speculative demand from investors, another result of the Fed's monetary policies.

Most economists agree that the U.S. cannot claw its way back to a sustained recovery until the embattled housing sector stages a sturdy comeback and the job market improves markedly. The employment outlook remains clouded. But if the housing numbers hold up in the months ahead, prices firm and we see a decent rise in mortgage applications (which declined in the first two weeks of October), then policy makers will be eager declare at least a partial victory. Still, those high jobless numbers and declining real wages are bound to remain a drag on growth. And housing itself plays a much smaller role in the U.S. economy these days. Total housing investment accounts for 2.4 per cent of GDP. At its high-water mark, the figure was 6.3 per cent.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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