By George Goss
@GeorgeGoss4

New home construction jumped 5.2 percent, wiping out the previous two months’ decline, an encouraging sign for an economic recovery threatened by turmoil in global markets.

Housing Starts (in thousands)

In another good sign for housing, the Federal Open Market Committee decided not to raise the federal funds rate, signaling mortgage rates will likely remain near historic lows.

“Global economic and financial developments continue to pose risks,” Federal Reserve Board Chair Janet Yellen said. “Against this backdrop the committee judged it prudent to maintain the current policy stance at today’s meeting.”

The U.S. Census Bureau released the housing starts data hours before Yellen’s announcement.

February’s 1.18 million housing starts edged closer to the National Association of Home Builders’  (NAHB) expectation of 1.26 million.

“We will no doubt have some ups and downs on a monthly basis, but continued modest growth is in the cards,” said David Crowe, NAHB’s chief economist.

The 7.2 percent spike in single-family home construction over January’s numbers signals a stronger housing market.

Single Family Housing Starts (in thousands)

“Current new home production is still well below longer-term potential, which is probably in the range of a seasonally adjusted rate 1.4 to 1.5 million,” said Michael Carliner, an independent consultant on housing economics. “It won’t climb that high this year, but supply hasn’t been excessive and there’s still pent-up demand.”

The latest report from the Harvard Joint Center for Housing Studies claimed that of the 43 million rental households in the U.S., over 50 percent are cost-burdened and spend 30 percent or more of their income on rent.

These tenants cannot keep paying the rent and will soon opt to buy, according to Ted Wieseman, Morgan Stanley’s chief economist.

“Something has to give somewhere,” Wieseman said.

Carline, who worked on the Harvard report, has a different take.

“These cost burdened renters are not ideal candidates to become home buyers,” Carliner said. “Although higher rents will encourage more affluent renters to become home owners.”

He added that the long-term mortgage rate influenced by the Fed’s policy decision has a significant impact on the number of housing starts. The 30-year-fixed-rate mortgage is 3.68 percent.

If the long-term rate decreased by one percent, Carliner said that would spur roughly 200,000 new housing starts.

When Lauren Wilson Geist, 29, first moved to Manhattan in 2012 over 50 percent of her income went to rent. Recently married, she took another plunge and bought a house with her husband in Princeton, New Jersey.

“We didn’t bother looking in Manhattan. We knew we wouldn’t want to raise a family here,” Geist said. “Also, no way we could afford to buy a place in Manhattan!”

The couple’s mortgage rate is 4.4 percent.

“That rate is very low,” said Garrett Buckley, a financial planner at Morgan Stanley. “When I bought my first house 16 years ago the mortgage was 8.87 percent.”

He added that his primary focus, and that of his peers in his industry, was on the Fed’s policy decision, not the housing starts figures.

“China’s slowing down precipitously, Europe’s in the doldrums and the U.S. economy is anemic,” Buckley added. “I’m with the Fed keeping interest rates low.”