US home construction expected to rise in September, bouncing back from steep August drop

Industrials Associated Press

The Commerce Department reports on U.S. home construction in September. The report will be released Friday at 8:30 a.m. Eastern.

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REVVING UP: Economists forecast that housing starts climbed 5.6 percent in September to a seasonally adjusted annual rate of 1.01 million, according to a survey by data firm FactSet. That would enable starts to regain some of the ground lost in August, when new home construction plunged 14.4 percent to an annual pace of 956,000.

Home construction has fallen below that 1 million start threshold in six of the past eight months.

HOUSING STALLS: The real estate market has failed to get much traction in recent months. Price growth is slowing, yet the surge in home values through the middle of last year has made affordability a challenge for many would-be buyers. And homebuilders are feeling slightly less optimistic.

Prices rose 6.4 percent in August compared with a year ago, according to real estate data provider CoreLogic. This marks a substantial slowdown. Home values had chalked up annual gains of as much as 12 percent toward the end of last year.

Those increases are substantially larger than wage growth, which has barely exceeded inflation by increasing at roughly 2 percent a year. Without wages rising more strongly, it becomes difficult to save for a down payment and qualify for a mortgage. This has boosted the share of Americans who rent, which has sparked construction of apartment complexes and simultaneously caused monthly rental costs to rise.

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Online real estate firm Zillow estimates that it takes 29 percent of people's household income to pay for rent, compared to 24 percent in 2000. The share of adults doubling-up with a roommate to cover rent has also increased to 32 percent from 25 percent in 2000.

And fewer buyers are searching for homes, causing homebuilders to become less confident in September. A sentiment index sponsored by the National Association of Homebuilders and Wells Fargo slipped to 54 in September compared to 59 in the prior month. Any reading above 50 represents growth.

But the portion of the index dedicated to traffic from would-be buyers fell to 41 last month from 47.

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 data from the Home Builders.