U.S. builders broke ground on apartment complexes last month at the fastest pace in nearly 28 years, as developers anticipate that recent jobs gains will launch a wave of renters.
The Commerce Department said Friday that housing starts in June climbed 9.8 percent, to a seasonally adjusted annual rate of 1.17 million homes. All of that growth came from a 28.6-percent surge in multi-family housing that put apartment construction at its highest rate since November 1987. Starts for single-family houses slipped 0.9 percent last month.
The gains show that what had been a sluggish construction sector is now running on economic adrenaline. Strong job growth and a rebounding economy have increased the numbers of buyers and renters searching for homes, while gradually rising mortgage rates have spurred homeowners to finalize deals.
"The residential market recovery is here, and it is strong and sustainable," said Peter Ciganik, managing director at real estate investor GRIS Partners.
Housing starts jumped 35.3 percent in the Northeast because of apartments, while climbing 13.5 percent in the South. Home construction slumped in the Midwest and West in June.
Nationwide, housing starts have risen 10.9 percent year-to-date.
Over the past 12 months, employers have added 2.9 million jobs, meaning that there are that many more people with paychecks to spend across the broader economy. The impact of those job gains and the unemployment rate dropping to 5.3 percent has surfaced in housing, where demand is outpacing the supply of homes and creating more pressure to build houses and apartments.
The market for new homes for sale had just 4.5 months of supply in May, compared to 6 months in a healthy market.
But the financial distress has also left more Americans renting instead of owning, creating more need for apartments. The share of Americans owning homes has fallen so far this year to a seasonally adjusted 63.8 percent, the lowest level since 1989.
Approved building permits rose increased 7.4 percent to an annual rate of 1.34 million in June, the highest level since July 2007. The bulk of that increase came for apartment complexes, while permits for houses last month rose just 0.9 percent.
There are other signs that builders are increasingly optimistic.
The National Association of Home Builders/Wells Fargo builder sentiment index released Thursday climbed to 60 this month, a level last reached in November 2005 — shortly before the housing boom gave way to the mortgage crisis that triggered the Great Recession. Readings above 50 indicate more builders view sales conditions as good rather than poor.
Mortgage rates have started to rise, although they remain low by historic standards.
The average 30-year, fixed mortgage rate was 4.09 percent last week, according to the mortgage firm Freddie Mac. That is up from a 52-week low of 3.59 percent.