Homebuilding surprises, confidence grows

Low mortgage rates, better job outlook among September stimulants

October 18, 2003|By BLOOMBERG NEWS

U.S. home construction rose last month to the second-highest pace since 1986 as Americans sought to lock in low mortgage rates and construction companies worked to fill a backlog of orders, a government report showed.

Builders started work on 1.888 million homes at an annual rate last month, up 3.4 percent from the revised 1.826 million started in August, the Commerce Department said in Washington. September's figure exceeded the median forecast of a 1.83 million annual rate in a Bloomberg News economist survey.

"The housing economy continues to surprise everyone but the builders," said Joel Rassman, chief financial officer of Toll Brothers Inc., the largest U.S. builder of luxury homes. "There's a huge pent-up demand that has yet to be satisfied."

Demand is increasing in part as Americans gain confidence. The University of Michigan's preliminary October consumer sentiment index, released yesterday, increased to 89.4 from 87.7 last month, topping the median forecast.

"This is a direct reflection of the positive economic data we've seen lately," said Maria Forres, an economist at Griffin Kubik Stephens & Thompson.

"Third-quarter growth is going to boom, and I think we'll see job growth in the fourth quarter."

Faster growth and a rebound in the job market might help keep home sales close to a record, economists said. In July, builders broke ground on 1.892 million homes at an annual pace, the highest since 1.933 million in April 1986.

Economists had forecast a reading of 88.2 in the consumer sentiment index, based on the median of 57 estimates in a Bloomberg News survey. They also estimated that housing starts would rise from the previously reported 1.82 million in August, based on the median of 65 estimates in a Bloomberg News survey.

Building permits, an indicator of future production, slipped 2.2 percent to 1.86 million.

The average interest rate for a 30-year fixed-rate mortgage has risen less than a percentage point from a record low reached in June.

"The economy seems to be moving toward a sustainable recovery," Federal Reserve Governor Ben S. Bernanke said at an economic conference in St. Louis.

U.S. homebuilder optimism this month was the highest in nearly four years, according to the National Association of Home Builders. The group's housing market index rose to 72 in October from 68 in September.

Residential construction accounts for 5 percent of the value of goods and services produced in the United States and has been supporting economic expansion.

Starts of single-family homes climbed 3.1 percent in September to a 1.52 million-unit rate after a 1.47 million pace a month earlier.

Starts of apartment buildings and other multifamily homes rose 4.5 percent to a 368,000 rate in September.

The median price of new homes rose 3.1 percent in the 12 months through August, to $184,500, the government reported last month. That's down from $192,500 in July.

The 30-year fixed mortgage rate in September averaged 6.15 percent after starting the month at 6.44 percent, the highest in more than a year, based on statistics reported by Freddie Mac, the second-largest purchaser of U.S. mortgages.

While having moved up from the record low of 5.21 percent in mid-June, rates are still more than 2 percentage points lower than the 1990s average of 8.5 percent.

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