(AP) U.S. developers broke ground on new homes at a faster pace in July. But the rise was all due to apartment construction, which is typically volatile. By contrast, builders began work on fewer single-family homes the bulk of the market and sought fewer permits to build them.
Friday's report from the Commerce Department suggests that home building is maintaining its recovery but might be starting to feel the effects of higher mortgage rates.
Last month, builders began work last month on houses and apartments at a seasonally adjusted annual rate of 896,000, the Commerce Department said. That was up 6 percent from June, though below a recent peak of just over 1 million in March. Construction began on 26 percent more apartments but 2.2 percent fewer single-family houses.
Overall housing starts remain below the 1.5 million-a-year rate that's consistent with a healthy market
The dip in single-family starts could raise concerns that rising interest rates might start to slow the housing recovery. The average rate on the 30-year loan remained unchanged at 4.4 percent this week a full percentage point higher than in early May.
Even so, builders broke ground on 15 percent more single-family homes in July than a year earlier. And including apartments, housing starts have increased 21 percent in the past year.
"The hit being taken is not nearly as bad as some had feared, at least not yet," Dan Greenhaus, chief global strategist at BTIG LLC, said in a note to clients.
Applications for permits for future home construction also rose, though solely because of apartments. Permits rose 2.7 percent to 943,000, thanks to a 13.5 percent jump in apartment permits. Permits for single-family homes dipped 2 percent after reaching a five-year high the previous month.
Americans have been buying more new homes, and builders have expressed optimism that demand will keep rising. Both trends should spur more construction. In June, new-home sales jumped to their highest level in five years.
A measure of homebuilder confidence rose for a fourth consecutive month in August to nearly an eight-year high. The National Association of Home Builders/Wells Fargo builder sentiment index, released Thursday, rose to 59 from 56 in July. That is the highest level since November 2005. A reading above 50 indicates that more builders view sales conditions as good rather than poor.
Home prices and construction began to recover early last year, and the recovery has picked up in recent months. It has offset some of the drag this year from higher taxes and federal spending cuts.
Slow but steady hiring and still-low mortgage rates have encouraged more people to buy homes. Increased demand, along with a tight supply of homes for sale, has pushed home prices higher. It's also made builders more optimistic about the market for newly built homes, leading to more construction and jobs.
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.
Despite the lift from housing, the economy has been sluggish this year. It expanded at just a 1.7 percent annual rate in the April-June quarter after a 1.1 percent annual rate in the first three months of the year.