Friday, December 17, 2004

Home building plunges in US

Turkish Press

WASHINGTON, Dec 16 (AFP) - US home building plummeted by a near 11-year record 13.1 percent in November, the government said Thursday, prompting concern that the rock of the economy is showing fissures.

Construction began on a seasonally adjusted annual rate of 1.77 million homes, down 13.1 percent from the month before.

Home building was down 13.8 percent from a year ago.

The news came as a shock to economists, who had expected about 2.01 million housing starts in the month, and raised concern that a slowdown in housing could brake the economy.

"Housing has been the rock upon which a lot of the recent growth was built," said Joel Naroff, president of Naroff Economic Advisors.

"If this is indeed the beginning of a move back toward more sustainable home construction activity, then there will be some slowing in the economy," Naroff said.

"And when mortgage rates do move back toward more normal levels, we could see an even greater slowdown."

Plunging mortgage rates last year triggered a wave of mortgage re-financing, putting billions of dollars into home owners' pockets and helping to stimulate a consumer-led economic expansion.

It was too early to make judgements, however, on the basis of one month's data, he said.

"This is a very volatile sector. However, the problems were spread throughout the housing sector as multi-family activity plummeted 19 percent while single-family was off about 12 percent," Naroff said.

"In addition, the pain was felt fairly evenly across the nation. So, should we be worried? Not just yet. First, permit requests were off a modest amount, indicating that builders are either not yet seeing any major falloff in demand or still think sales will remain solid. Second, the level of starts would have been categorized as strong up to the middle of 2003."

Permits authorizing new housing -- a barometer of future activity -- fell 1.5 percent to an annual rate of 1.99 million homes in September. Compared with a year ago, permits were up 3.5 percent.

Wachovia economist Gina Martin said housing starts were back to the levels of May 2003.

"The outsized decline in starts in November is a bit confusing given the steady and elevated pace of permitting over the last several months," Martin said.

"Perhaps material and worker shortages due to the surging demand post-hurricanes can partially explain the decline," she added.

"Regardless, proponents of the so-called 'housing bubble' will likely point to this report as a sign of impending doom for the housing market. We do not believe this to be the case."

Housing starts were still well balanced with the pace of sales, she said, and the drop in construction in November only put builders under more pressure to complete homes already sold to keep up with demand.


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