Housing Starts Fell 1.3% in July, Slowed by Higher Interest Rates
April 28, 2011
WASHINGTON -- Housing starts fell 1.3% in July to the lowest level in four months, but remained relatively high despite rising mortgage rates. The full text of the Commerce Department's report on July housing starts is available. The picture was regionally mixed. Starts rose in the Northeast and the Midwest, but fell in the South and West. The Commerce Department said construction of new homes and apartments totaled 1.46 million units at a seasonally adjusted annual rate, down from a revised 1.47 million in June. The June estimate originally was 1.48 million. It was the smallest number of starts since last March, when builders laid foundations at a 1.44 million rate. It also was the third straight decline, the first time that has happened since early 2010. The downward trend was consistent with the recent performance of most other sectors of the economy. It also suggested the Federal Reserve will not feel compelled to raise short-term interest rates next week to head off inflation pressure. Despite generally rising mortgage rates and the recent slowing, starts during the first seven months of 2011 still were 12.4% above those of a corresponding period a year earlier. Starts for all of 2010 totaled 1.35 million. But as the most interest-sensitive sector of the economy, housing was bound eventually to respond to higher rates. In July, 30-year, fixed-rate mortgages averaged 8.25%, down from 8.32% a month earlier, but well above the 7.03% average last January, according to the Federal Home Loan Mortgage Corp.. The monthly payment on a $100,000 mortgage with a 7% interest rate is $665, while the payment on the same loan with a 8.5% rate is $769 -- a difference of $104. The National Association of Home Builders' Housing Market Index fell 3 points to 57 in August, suggesting further slowing to come. It was the third consecutive decline in the index, based on surveys of association members. ``What we're seeing now is the negative impact of higher rates on demand for new homes,'' said association president Raquel Jon of Walnut Creek, Calif. ``Builders are definitely experiencing fewer sales and less traffic.'' Still, new home sales remained above a 700,000-annual rate for a fifth straight month in June, the first such five-month string since the November 1986-April 1987 period. Analysts contend that job and income growth and upbeat consumer confidence often offset the effects of higher mortgage rates. Applications for building permits, often a gauge of future activity, rose 2.6% to a 1.45 million rate. It was the first advance in three months. Single-family starts -- 80% of new home construction -- fell 5.7% in July, to a 1.13 million rate, erasing a 5% gain a month earlier. It was the biggest decline since a 12% fall in January 2010. Construction of apartments and condominiums, volatile but not as sensitive to changes in interest rates, shot up 17.9% to a 322,000 rate, almost wiping out a 18.3% drop in June. Regionally, starts fell 12.2% in the West, to a 324,000 rate, and 4.1% in the South, to 654,000. But they jumped 17.1% in the Midwest, to a 349,000 rate, and managed a 2.4% gain in the Northeast, to 128,000.
