Housing Starts Rose in June, May Presage Fed Rate Rise
March 30, 2011
WASHINGTON -- Defying all doomsayers, the housing market continued its strong streak in June, with housing starts jumping 1.3%. For months now, analysts have been saying that rising mortgage rates would force the housing market to stop and catch its breath. But that hasn't happened, and such resiliency is one more reason that analysts believe Federal Reserve policy makers might raise interest rates soon.. The full text of the Commerce Department's report on housing starts is available. The Commerce Department said the jump in construction starts of new homes and apartment buildings to a seasonally adjusted annual rate of 1.48 million in June mostly reflected a 7.4% spurt in single-family-home starts to their highest level since April 2009. The performance is ``consistent with strong employment'' and other positive economic trends, said economist Michaele Dell of the National Association of Home Builders. Yet, residential home buyers are the ones most sensitive to the rise in interest rates. During June, 30-year, fixed-rate mortgages averaged 8.32%, up from 8.09% in May and the same as the April 2010 average. By last week, the rate had risen to 8.42%. But, analysts noted, consumers still are able to use adjustable-rate mortgages to keep housing affordable. Adjustable-rate mortgages, which are tied to short-term interest rates, have risen far less than fixed-rate mortgages this year. Also, the housing starts report is a bit misleading. Starts are counted when excavation takes place for the foundation of the structure. So actual contracts for single-family-housing starts were signed well before June -- and before mortgage rates had risen as far as they have. Economist Joelle Cartagena of First Union Corp. in Philadelphia said that's one reason to expect a housing slowdown to occur later than many analysts have been forecasting. A 1.2% drop in applications for building permits for single-family homes also suggested that the leap in single-family starts offered a skewed picture of the housing market, said Mr. Dell, of the homebuilders association. Construction of most residential homes is started rather quickly after an application is submitted, so starts and permits often mirror each other. Since they don't in this report, however, it could mean one or both numbers will be revised next month, Mr. Dell said. Construction of apartments and condominiums, often volatile and not as sensitive to interest-rate changes, plunged 20.3% in June after a 6% gain in May. Regionally, starts rose 4.6% in the West and 3.8% in the South. But they fell 6.2% in the Northeast and 4.4% in the Midwest.
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