McLean, VA (written by Julie Schmit/USA Today) -- A recovery in home construction is finally building strength to help the economy for the first time in years.
The home construction market registered "blowout" numbers in September, IHS Global Insight says.
Housing starts were up 15% from August, the Commerce Department reported, with increases in every region of the U.S. except the Northeast.
Housing permits, which are less volatile than starts and indicate future building, rose 11.6% and posted solid gains in all four U.S. regions.
The strong numbers, while they may not be repeated in coming months, are "good solid evidence" that the housing recovery is underway, says David Crowe, chief economist at the National Association of Home Builders (NAHB).
Housing typically leads the U.S. economy out of recession. It hasn't this time, given the depth of the crash that knocked down home prices by 30% and left behind a string of dismal years for new construction.
But in recent quarters, housing has shown improving vital signs, with rising prices and year-over-year increases in existing and new home sales. Since World War II, housing has contributed an average 4.7% annually to the growth in U.S. gross domestic product, the NAHB says. That's rebounded to more than 10% this year, Crowe says.
Home construction is closely watched because it's labor intensive. The industry lost more than 2 million jobs since the housing bubble burst. Few have come back, Crowe says. When people buy new homes, they also unleash spending for goods such as appliances and furniture - and that generates jobs in other industries.
"Housing is now contributing to the economy," says Michael Lea, director of San Diego State University's Corky McMillin Center for Real Estate.
Population growth and low interest rates are infusing life into the housing market.
Household formation has clawed its way back to about half of its historic level after falling to about a quarter of that in 2008, says Zillow economist Stan Humphries. New homes have to be built to meet demand.
Last year, home builders began construction on 434,000 single-family homes, the worst year on record. This year, single-family starts will be up 21% from last year, the NAHB forecasts, and then increase 26% and 30% in the next two years.
Multifamily starts -- driven largely by pent-up demand -- surged 56% last year and will be up 26% this year, NAHB says. Growth will then slow to 6%.
Despite the upbeat trend of recent housing data, some housing experts warn of headwinds. Falling interest rates this year have probably pulled some demand forward, says Steven Ricchiuto, chief economist for Mizuho Securities.
The Federal Reserve's efforts to lower interest rates have pushed down the average 30-year mortgage rate to 3.39% for the week ended Oct. 11. The same week last year, the average 30-year-fixed rate was 4.12% a year ago.
That drop "pulled some demand forward," says Steven Ricchiuto, chief economist for Mizuho Securities. When demand gets pulled forward "you naturally run into a vacuum later."
The same pattern occurred with home sales after federal and state tax credits goosed demand in 2009 and early 2010. Sales fell after the tax credits expired.
"I think you'll have a situation in the fourth quarter where there'll be a demand void," says Mark Hanson, an adviser to professional investors on housing and mortgage issues.
Hanson says demand will fall off as investors, who have gorged on foreclosures for several years, back off in the face of rising prices and limited supplies of houses for sale. He also says too many current owners can't buy "repeat" buyers can't do that now because they don't have enough equity in their homes to sell.