Housing starts rose much more than expected during November, as unseasonably warm weather allowed builders to begin work on more projects than they usually do in November.
The latest housing market data showed that activity picked up in recent months, said an economist at Wells Fargo Securities.
Building activity normally slows substantially late in the year, as temperatures drop and there are fewer hours of daylight. November, December, January and February collectively have accounted for around one quarter of each year's homebuilding activity during the past 25 years, despite constituting one-third of the year, said Mark Vitner, an economist at Wells Fargo Securities.
According to the National Association of Homebuilders/Wells Fargo Housing Market Index (HMI), builder confidence continued to show gains in December, increasing to 21, the third consecutive monthly increase and the highest level since May 2010.
Starts and permits have also perked up, with single-family starts up 4.6 percent on a year-ago basis in November and permits up 3.6 percent over the same period. The increases mirror improvement in construction outlays and sales, which have also seen gains in the past few months, said Vitner.
While the increases are promising, Vitner does not believe a genuine recovery in housing activity has begun. Indeed, the major obstacles that have troubled the housing market over the past few years still remain intact, including the oversupply of single-family homes and mounting distressed transactions.
Vitner said it is likely, however, that the recent upward trend in housing activity is due to two factors: actual strength in a select few markets, and unseasonably warm weather during a normally slow time of year.
Vitner said one of the more promising signs of progress is the string of gains in homebuilder sentiment. While builders continue to face competition from deeply discounted existing homes, activity has ramped up in the South. Builder confidence is up 10 points in the South since September, accounting for a large portion of the overall index's gain in recent months.
Another likely explanation for the successive gains could be the seasonal adjustment process. Indeed, single-family housing starts rose 2.3 percent in November following a 3.6 percent increase in October, but fell 11.3 percent on a not seasonally adjusted basis on the month.
Vitner said single-family housing starts usually decline this time of the year and since starts were already near record lows, activity did not fall as much as usual, resulting in a seasonally adjusted rise. A similar trend is evident in permits, construction spending and sales.