Report: US home construction shows strength

The U.S. housing industry -- crucial to any recovery in employment and other aspects of the economy -- showed more signs of recovery in August, according to two reports issued Wednesday.

The Census Bureau said housing starts and permits rose substantially in August compared with a year earlier. Separately, sales of previously occupied homes climbed 7.8% on a monthly basis and were up year-over-year as well, according to the National Association of Realtors (NAR).

Builders started on new homes at an annual rate of 750,000, up 29.1% compared with a year earlier -- when only 581,000 homes were started -- and a rise of 2.3% from the month before. They applied to build another 803,000 new homes on an annual basis, a 24.5% jump compared with August 2011, but a slight drop from July.

Home builders have become increasingly bullish, as measured by a builder confidence index from the National Association of Home Builders (NAHB), which reached its highest level since June 2006.

"This fifth consecutive month of improvement in builder confidence provides further assurance that the housing market is moving in a positive direction," said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla.

The builders have been buoyed by an increased stream of potential buyers coming to examine model homes, according to NAHB's chief economist, David Crowe. Those should translate into increasing sales going forward.

Meanwhile, the Realtors' group said existing home transactions grew 7.8% to an annual rate of 4.82 million a year in August. That was 9.3% above last August's sales.

"The housing market is steadily recovering with consistent increases in both home sales and median prices," said Lawrence Yun, NAR's chief economist. "More buyers are taking advantage of excellent housing affordability conditions."

Most housing markets around the nation have reached a good balance between sellers and buyers, according to Yun. There's a 6.1 month supply of homes on the market at the current pace of sales. That's down from 6.4 months in July and 8.2 months a year earlier.

The housing market has shown several signs of life over the last few months with sales of existing homes, new home sales and home prices all turning positive.

Historically low mortgage rates have helped propel the market forward. This week, they appear to be headed for new lows, following last week's announcement from the Federal Reserve that it would begin to purchase tens of billions in mortgage backed securities each month.

The third round of quantitative easing "provided the financial support to the mortgage market and signaled an intention to keep rates low for the foreseeable future," said John Tashjian, who runs a real estate investment fund, Centurian Real Estate Partners.

According to Tashjian, the real benefit of the Fed's action could be to increase lending volume. The banks, knowing that any well underwritten mortgage will find a ready market, should be more willing to approve mortgages.

That could provide a bigger market for home builders.

"Unnecessarily tight credit conditions are preventing many builders from putting crews back to work and discouraging consumers from pursuing a new-home purchase," said the NAHB's Rufenberg.

Prices are on the upswing as well. They have benefited from a change in the mix of homes sold with distressed properties -- repossessed homes and short sales -- accounting for only 22% of total sales, down from 31% last August.

Distressed properties, especially repossessions, sell for a lot less than conventionally sold homes. With their market share waning, the median home price grew 9.5% year-over-year to $187,400. That marked the sixth consecutive month of year-over-year price increases, the first time that has happened since May 2006, near the very peak of the housing price boom.