Pace of New Home Building Surges to 2-Year High

Construction seems to be on a tear, but access to mortgages could be a drag.

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A homeowner walks in front of his new house as construction continues in Rye, N.Y.

Builders broke ground on more new homes in August as the pace of single-family home construction surged to its strongest level in more than two years, yet more evidence that the housing market is turning around despite lackluster economic news.

Housing starts rose 2.3 percent to a seasonally adjusted annual rate of 750,000 homes, the Commerce Department reported Wednesday, lower than the 765,000-home rate economists predicted, but still almost 30 percent higher than figures in August 2011.

"[It's] another step forward on a very long staircase," John Tashjian, principal at Centurion Real Estate Partners in NYC, said in an e-mail. "We continue to see positive signs emerging from the housing market, suggesting that the entire market, not just individual submarkets, are stabilizing and steading themselves for future growth."

[Read: August Existing-Home Sales Beat Economists' Expectations.]

In other good news, architects—another industry battered by the collapse of the construction sector—reported increased billings, according to Architect magazine. According to the magazine's billings index, figures are finally above the break-even point, indicating that demand for architecture work is growing again.

"While not as robust as the numbers from last fall and winter, these nevertheless show an industry that is growing again, albeit slightly," Architect reported.

But while many signs are pointing to a strengthening housing market, there are still many more obstacles to overcome, not least of which are the lingering psychological scars of the past four bumpy years in the housing market.

"The U.S. home buyer is still wary of housing as an investment," Tashjian says. "When potential home buyers step outside and see half their block with "For Sale" signs on it, it's doesn't exactly inspire them to make the largest purchase of their lives."

[Read: Analysts See Bright Future for Big Home Builders.]

Availability of mortgage credit also remains a huge obstacle to those who have the desire to purchase a home but lack the cash on hand. The Federal Reserve recently initiated another round of bond-buying to keep mortgage rates low and increase housing demand, but the salvation of the housing market lies beyond the control of financial and monetary policy.

"While the Federal Reserve has done its part to stabilize housing, now it's up to the banks to stop sitting on their hands and start lending," Tashjian says.

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