The housing market which has taken a beating since the financial crisis of 2008 finally saw some good news today. Housing starts and building permits rose in November. Housing starts rose 9.3% to a adjusted annual rate of 685,000 units, the highest level in over a year.
Housing data also showed an increase in the number of groundbreaking for single-family homes.
“Investors should take heart that if Europe doesn’t melt down and Congress figures out how to extend the payroll tax cut, the economy can continue to gain momentum,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
New permits for future construction increased nearly 6% to 681,000 unit pace in November. Stocks reacted positively to the news as each of the major indices are up well over 2%.
This rise in home building helped raise optimism among traders and economists. Many are hopeful that the housing sector will add to the U.S. GDP next year. Any jump in GDP will be relatively small though as residential construction only accounts for about 2.5% of GDP. It could add jobs though as economists estimate an additional 100,00 housing starts would add about 250,000 jobs.
Home building has now grown for two straight quarters, but it is a long way from being fully recovered.
“It will still take two to three years to work off the excess inventory and housing prices will remain under pressure through the first half of 2012,” said Eric Green, chief U.S. economist at TD Securities in New York.
“However, residential activity is now in an upswing, will contribute modestly to GDP growth in 2012, and while this will not drive the recovery, every little bit helps when growth is trending around 2 percent.”
This is great news for the housing sector and for the economy as a whole. Expect the market to continue its rally today barring any bad news coming out of Europe.