CNBC: Housing Starts Increase Largely Reflects Rentals

Wednesday, 21 Nov 2012 10:07 AM

By Dan Weil

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Enthusiasm grew in the housing market Tuesday amid the news that new home construction soared 3.6 percent in October.

That increase took the annual home starts rate to 894,000, the highest level since July 2008. And Goldman Sachs predicts the rate will rise to 1 million by the end of 2013 and 1.5 million by the end of 2016, Business Insider reports.

But the bad news is that many of the new homes are rentals, writes CNBC’s Diana Olick.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

The October increase stemmed entirely from apartment-building starts, which jumped 10 percent. Developers are focusing on apartment buildings, because demand is so strong for rentals.

“The consensus view on supply remains that it is not a threat to apartment fundamentals in the near term. Overall, demand for apartments (driven by household formations) should continue to rise with deliveries,” analysts at Cantor Fitzgerald said in a note, according to CNBC.

Many economists, such as those at Goldman Sachs, list rising household formation as a factor that will boost housing starts. Goldman economists predict household formation will increase from its current 1.0 million rate to 1.2 million in 2013 and 1.3 million in 2014-2016.

But household formation includes renters, such as young people leaving their parents’ homes to move into an apartment, Olick notes.

Many economists see the housing starts report as confirmation of other recent statistics showing strength in the residential real estate market. And this strength will boost the economy, they say.

"The broad improvement in home prices, home equity, starts and inventory clearing are key developments that position the economy for stronger growth next year, and beyond," Eric Green, chief economist at TD Securities, tells Reuters.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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