WASHINGTON (Reuters) – Residential construction rose more than expected in August to a four-month high, suggesting the embattled housing market was starting to stabilize following the end of a homebuyer tax credit.
The Commerce Department said on Tuesday housing starts rose 10.5 percent, the largest increase since November, to a seasonally adjusted annual rate of 598,000 units.
July's residential construction was revised down to show a 0.4 percent gain, which was previously reported as a 1.7 percent increase.
Analysts polled by Reuters had expected housing starts to rise to a 550,000-unit rate. Compared to August last year, housing starts were up 2.2 percent.
"Housing starts are at very low levels but we're clearly seeing a solid bottom in the housing market. It's too early though to call it a housing market recovery," said Matthew Strauss, a senior currency strategist at RBC Capital in Toronto.
The data came as Federal Reserve policymakers were due to meet to assess the economy. The U.S. central bank is largely expected to reaffirm its bias toward further monetary policy easing to help the recovery.
However, the Fed is not expected to announce a fresh round of purchases of longer-term government debt to keep interest rates low as economic data such as retail sales for August have eased fears of a double-dip recession.
U.S. stock index futures extended gains on the housing data, while Treasury debt prices trimmed gains. The U.S. dollar pared losses versus the yen.
New building permits for future home construction rebounded 1.8 percent to a 569,000-unit pace last month, lifted by a 9.8 percent rise in permits for multi-family units, after an unrevised 4.1 percent drop in July. Analysts had expected a 560,000-unit pace in August.
The housing market has hit a soft patch following the end of a popular homebuyer tax credit in April and a survey on Monday showed sentiment among home builders remained mired at an 18-month low in September.
A combination of high unemployment and an oversupply of homes are also weighing on the sector, which was the main catalyst of the worst recession since the Great Depression.
The downturn ended in June last year, but the economic recovery has since lost momentum, sparking fears in financial markets of a renewed recession.
Residential construction in August was bolstered by a 32.2 percent jump in groundbreaking activity in the volatile multi-family segment to an annual rate of 160,000 units.
Single-family starts increased 4.3 percent to a 438,000-unit pace, the highest since June.
Home completions increased 5.6 percent to a 603,000-unit pace, also the highest since June. The inventory of total houses under construction was unchanged at 444,000 units last month, while the total number of units authorized but not yet started fell 3.1 percent to a record low 87,000 units.