WASHINGTON (AP) — U.S. developers received approval in October to build apartments at the fastest pace in five years, a trend that could boost economic growth in the final three months of the year.
Permits to build houses and apartments were approved at a seasonally adjusted annual rate of 1.034 million, the Commerce Department said Tuesday. That's 6.2 percent higher than the September rate of 974,000 and the fastest since June 2008, just before the peak of the financial crisis.
Nearly all of the increase was for multi-family homes, a part of residential construction that reflects rentals and can be volatile from month to month. Those permits rose 15.3 percent to a rate of 414,000, also the fastest since June 2008. Plans for construction in the U.S. south drove much of the increase.
Permits for single-family houses, which make up roughly two-thirds of the market, rose 0.8 percent to a rate of 620,000. That's still slightly below the August pace of 627,000. And it suggests that higher prices and borrowing costs are weakening buyer demand.
Data on homes started in October and September were not included in Tuesday's report. Those figures have been delayed because of the government shutdown and will be released on Dec. 18 with the November home construction report.
The increase in permits suggests those figures will rise. And it indicates that "housing construction will make a much bigger contribution" to economic growth in the final quarter of the year, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
But the sales of single-family homes could soon slow in the coming months, if developers don't see greater demand soon, Shepherdson said. "The flat trend in single-family is ominous," he said in a client note.
Construction of apartments has increased in the aftermath of the Great Recession, as the rate of homeownership has fallen from its 2006 peak of 69 percent to 64 percent. Lingering unemployment and stagnant incomes for millions of Americans have increased demand for rentals, which are at their lowest vacancy rates since early 2001.
Builders are also benefiting from a low supply of homes for sale, which has increased prices for sellers. The rise in permits also suggests builders mostly shrugged off the partial government shutdown, which lasted from Oct. 1 through Oct. 16. The shutdown was blamed for delaying the release of the October and September housing data. And it continued to effect the government's reporting on homes started for those months.
Most economists expect the housing recovery will withstand an increase in borrowing costs. But the higher costs have slowed home sales in recent months. Fixed mortgage rates have risen almost a full percentage point since late May, when borrowing costs were near record lows. Last week, the average on the 30-year loan was 4.22 percent, according to mortgage buyer Freddie Mac.
Mortgage rates are still low by historical standards. And steady job gains have made it possible for more Americans to buy homes. Homebuilder confidence tailed off slightly after the government closed in October, according to a survey by the National Association of Home Builders. Their optimism flagged slightly out of concern that the shutdown and possibility another fiscal crisis at the start of next year will keep potential homebuyers on the sideline.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.