NEW YORK (TheStreet) -- Housing construction is finally showing signs of recovery, but not because more Americans are buying homes.
October permits to build new houses and apartments came in comfortably above Wall Street estimates, the government reported Wednesday. Builders got permission to erect homes at a 1.08 million annual rate, beating forecasts that averaged 1.03 million, according to Econoday. That's up 4.8% from September.
The growth in new construction, however, continues to be concentrated in rental housing, not houses for sale. Younger workers are delaying forming households and choosing apartments, even though renting is more expensive than buying in most of the country. The drop in incomes for young adults has helped drive the number of U.S. households 5.4 million lower than it would be without recession-induced "doubling up," real-estate site Zillow reports.
The year as a whole is likely to bring about a 10% gain in housing construction, concentrated in apartment builders, says Michelle Meyer of Bank of America Merrill Lynch. That's well below the jump between 2012 and last year. Housing-start growth has slowed right along with home price appreciation, as each began to climb out of the 2007 to 2011 bust.
"In the past year, residential investment has slowed, with the sector not contributing [to gross domestic product growth] on a four-quarter moving average," she says.
Like Merrill's analysts, IHS Global Insight economists expect that to improve in 2015 -- but only slightly. In a conference call with reporters Tuesday, IHS said residential construction will boost first-half GDP by about 0.2 percentage points.
All this new construction is still good for home builders. On Tuesday, the National Association of Home Builders said its confidence index rose nearly four points to 58 on a scale of 100, with any score above 50 pointing to expansion. And on Thursday, the National Association of Realtors is expected to report that existing-home sales rose in at October an annual rate of 5.17 million, vs. 5.15 million in September.