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Home construction rebounded sharply in July

Construction At A Toll Brothers Development Ahead Of Housing Starts FiguresConstruction At A Toll Brothers Development Ahead Of Housing Starts Figures
A worker builds a new Toll Brothers home.Photo by Bloomberg—Getty Images

U.S. home construction jumped a better-than-expected 16% in July, reaching a nine-month high and indicating home builders are betting on strengthening demand as the U.S. economy expands and adds more jobs.

Housing starts increased to nearly 1.1 million on a seasonally adjusted annual rate, the Commerce Department said Tuesday. The strong figures were due to growth in housing starts for single-family and multi-family homes, and follows disappointing data for May and June. Observers had projected housing starts to total 963,000, according to a survey conducted by Bloomberg News.

Newly authorized building permits also totaled nearly 1.1 million on a seasonally adjusted annual rate in July, up 8.1% from June.

“Everything I’ve seen so far suggests we should be seeing gradual improvement in construction,” said Gleb Nechayev, senior managing economist at CBRE Econometric Advisors.

Investors are being bombarded with housing data this week, as well as quarterly reports from home-improvement retailers Home Depot and Lowe’s.

There are some indications that the housing sector is performing fairly well. American homebuilers’ confidence in the housing market hit a seven-month high, while home-improvement retailer Home Depot (HD) reported better-than-expected results for the fiscal second quarter.

The housing sector is benefiting from slower price appreciation and rising home inventory, has inspired more potential home buyers to make a purchase.

But supply shortages in some hot markets and tight lending conditions are problematic. And while the U.S. economy continues to report strong monthly job growth, Nechayev and others are concerned the slow income improvement, particularly for younger adults, makes it difficult for those individuals to make a purchase. Those factors could explain why the housing rebound–when looking at figures for the past several months–has been both slow and choppy.