June Housing Starts Highest in Four Years

It's not like the run-up in the early 2000s, but housing is no longer a drag on the economy.

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After being blamed for stunting America's economic recovery for the past several years, the housing sector is now one of the lone bright spots, continuing to outperform economists' expectations.

Wednesday's housing start numbers were no different. In June, builders broke ground on the most new homes and apartments in nearly four years, according to the Commerce Department, with new constructions rising almost 7 percent from May to a seasonally adjusted annual rate of 760,000.

Gains were broad based but strongest in the West and Northeast, which saw building surges of 37 percent and 25 percent respectively.

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The housing starts numbers come on the heels of news that home builder confidence in July saw the largest monthly jump in nearly a decade, yet more evidence that the construction industry—a particularly ravaged sector in the wake of the housing bust—might finally be becoming less of a drag and even a benefit to the broader economy.

Unexpected strength in the construction industry and housing market has buoyed economists' outlook for the economy, which many feared was faltering in recent months.

"The missing link, the housing market, is slowly coming back and that is one reason we can hope that growth is not [as] weak as believed," Joel Naroff, president and chief economist at Naroff Economic Advisors, wrote in a note to clients.

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Permits—a leading indicator of future construction—fell almost 4 percent in June, but Naroff doesn't see it as cause for concern, primarily because permit requests have been running well above starts in recent months.

"Now they are more in balance," Naroff says. "We have to expect that starts will be stable in July since permits are now slightly below starts. There are a lot of permits that have yet to be used, so construction should stay firm."

But the construction sector still has a long trek back to normal, economists caution. Despite encouraging gains in June, housing starts are still about half of what experts say they should be in a normal, healthy economy.

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter at @mmhandley.