Housing starts unexpectedly surged to
the highest in 17 years last month, evidence homebuilding is
underpinning an accelerating U.S. economy.
Builders started work on 1.872 million homes at an annual
rate in July, a 1.5 percent increase from June and the most since
1.933 million in April 1986, the Commerce Department said in
Washington.
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Mortgage rates that have risen more than a percentage point
over the past month haven’t discouraged buyers, construction
company executives said. The University of Michigan’s preliminary
August consumer sentiment index, released today, registered 90.2,
compared with 90.9 in July. That’s up more than 10 points since
the end of the Iraq war.
“We see in our markets a high degree of traffic and
optimism,’” Laurence Hirsch, chairman and chief executive officer
of Centex Corp., the No. 2 U.S. homebuilder in stock market
value, said in a television interview with Bloomberg News.
“We’ve been living with low interest rates, but just as
important to the housing market is consumer confidence and a
sense that employment is going to improve.”
Unemployment fell to 6.2 percent in July from 6.4 percent a
month earlier, and economists expect hiring to increase as the
expansion picks up speed. Gross domestic product is forecast to
expand at a 3.6 percent annual rate this quarter, according to
the median estimate in a Bloomberg News survey. The economy grew
at a 2.4 percent annual rate in the second quarter, up from the
first quarter’s 1.4 percent rate.
Residential construction, which accounts for 5 percent of
the value of goods and services produced in the U.S., has been
supporting the economy’s expansion, fueled by the lowest mortgage
rates on record. “It also provides a positive impulse to the
consumption of household durable goods” such as furniture and
appliances, said Mickey Levy, chief economist at Banc of America
Securities in New York.
Starts of single-family homes jumped 1.9 percent in July to
a 1.521 million-unit rate, the highest since 1.525 million in
November 1978. Starts of multifamily homes declined 0.6 percent
to a 351,000 annual rate.
Building permits, an indicator of future production, fell
2.4 percent to 1.78 million from 1.823 million a month ago. The
drop in building permits was led by authorizations for
multifamily projects, which declined 9.8 percent in July.
Single-family permits edged down 0.3 percent to a 1.423
million annual rate from June, which had the highest pace since
at least 1960, when monthly records started. For all of 2003,
single-family permits have averaged a 1.343 million rate.
Builders have reported a rise in demand even as mortgage
rates bounced up from June’s record low. After reaching a record-
low 5.21 percent in mid-June, the rate on a 30-year fixed
mortgage rose as high as 6.34 percent in early August, according
to Freddie Mac, the second-biggest U.S. mortgage buyer.
Still, rates are lower than a year ago, and housing starts
are on course to reach 1.773 million this year, based on
Bloomberg calculations, up from last year’s 1.705 million, the
most since 1986.
“Housing starts are going to remain strong,” said Stuart
Miller, chief executive officer of Lennar Corp., in a television
interview with Bloomberg News. “Movements in interest rates are
relatively small, with rates at historical lows.”
Mortgage rates are typically pegged to long-term securities
such as 10-year Treasury notes, whose yields have risen because
investors predict higher inflation might return as the U.S.
economy strengthens. Federal Reserve policy makers are holding
their overnight bank lending rate at a 45-year low of 1 percent
in an effort to stimulate growth.
Bloomberg News
