My Real Estate Blog

Housing starts at 5-month high

10/19/2010

WASHINGTON (Reuters) – Housing starts hit a five-month high in September, a tentative sign of healing in the housing market, though permits for future home building fell as approvals in the volatile multi-family segment tumbled.

The data on Tuesday had little impact on expectations the Federal Reserve would ease monetary policy further at its November 2-3 meeting to shore up the economy and prevent a damaging downward spiral in prices.

The Commerce Department said housing starts rose 0.3 percent to a seasonally adjusted annual rate of 610,000 units, the highest level since April. August starts were revised up to a 608,000-unit pace from the previously reported rate of 598,000 units.

Economists had expected housing starts to slip to a 580,000-unit rate. Compared to September last year, housing starts were up 4.1 percent.

"This is not a strong report, but does suggest some bottoming," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut.

Analysts said the housing data did not alter the view that the U.S. central bank would ease further.

The Fed, which has already taken benchmark interest rates effectively to zero and bought some $1.7 trillion in Treasury and mortgage-related debt, is almost certain to launch a second round of quantitative easing next month.

"Regardless of what happens with the data this week, QE2 is still coming," said Zach Pandl, U.S. economist at Nomura Securities International in New York.

U.S. stock index futures held steady at lower levels after the data, as investors continued to focus on an interest rate hike in China and poor earnings from technology titans Apple and IBM.

U.S. Treasury debt prices extended losses on the report, while the dollar was steady at higher levels.

New building permits dropped 5.6 percent to a 539,000-unit pace last month after an unrevised 2.1 percent increase in August. Permits were dragged down by a 20.2 percent tumble in multi-family units. Permits for single-family homes rose 0.5 percent last month.

Economists had expected overall building permits to rise to a 580,000-unit pace in September.

Though the housing market is starting to settle down after hefty declines following the expiration of a government tax credit for home buyers, an overhang of unsold homes is stifling recovery.

A survey on Monday showed sentiment among home builders edged up this month, but remained at depressed levels.

Groundbreaking last month was lifted by a 4.4 percent increase in single-family home construction. Starts for the volatile multi-family segment fell 9.7 percent.

Home completions rose 7.3 percent to a 648,000-unit pace. The inventory of total houses under construction fell 1.6 percent to a record low 437,000 units last month, while the total number of units authorized but not yet started dropped 6.9 percent to an all-time low of 81,100 units.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)