Wednesday, March 16, 2005

U.S. February Housing Starts Rise 0.5% to 2.195 Million Rate

March 16 (Bloomberg) -- U.S. home construction unexpectedly rose to a 21-year high in February, a government report showed, suggesting low mortgage rates are still fueling demand.

Work began on 2.195 million homes at an annual pace, a gain of 0.5 percent from January, the Commerce Department reported today in Washington. Economists expected starts to slow to a 2.04 million pace last month, according to the median estimate in a Bloomberg News survey.

``Home construction has been blisteringly strong,'' said Joseph Abate, a senior economist at Lehman Brothers Inc. in New York, before the report. Some of the strength ``is clearly the result of low mortgage rates that have managed to keep the housing market up and running.''

Thirty-year mortgage rates below 6 percent and the creation of 2.2 million jobs in 2004, the most in five years, are underpinning the housing market and the economy. Still, forecasts for higher borrowing costs later this year will probably keep sales from reaching a record for a fifth straight year, economists said.

``Housing starts should perform well in 2005, but they are likely to trend lower as the housing market cools from the vigorous pace seen in the prior few years,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York, before the report.

The pace of sales surpassed all estimates in the Bloomberg survey. Forecasts ranged from a 1.9 million rate to a 2.15 million pace. Starts for all of last year totaled 1.96 million, the most since 1978.

Starts of single-family homes rose 0.3 percent in February to a record 1.775 million-unit rate. Starts of multifamily homes increased 1.7 percent to a 420,000 annual rate.

Building Permits

Building permits, an indicator of future construction, fell 2.7 percent to 2.074 million units at an annual rate, after rising 3 percent the previous month.

February housing units authorized but not yet started fell 3.3 percent to 200,300 units.

By region, starts rose 20.4 percent in the Midwest to 408,000 at an annual pace, the fastest since November 2003; 19.1 percent in the Northeast to 193,000; and 0.7 percent in the West to 552,000. They fell 8.1 percent in the South to 1.042 million.

February housing completions fell 1.5 percent to 1.868 million units at an annual rate from 1.896 million.

The National Association of Realtors said March 14 it expected existing-home sales to decline 3.1 percent this year to 6.57 million from a record 6.78 million in 2004. It said new home sales would total 1.13 million, down 5.8 percent from the record 1.2 million of last year, while housing starts would drop to 1.94 million units.


``After setting four consecutive record years, the housing market is due for a breather,'' said David Lereah, the Realtors group's chief economist.

Thirty-year fixed mortgage rates may increase to 6.7 percent by the end of 2005 and average 6.2 percent for all of this year, said Lereah in a report. The rate averaged 5.63 percent last month compared with 5.71 percent in January, according to Freddie Mac, the No. 2 buyer of mortgages. Last week, the average 30-year rate was 5.85 percent.

The median new home price is expected to rise 3.9 percent to $228,300 in 2005 after surging 12.6 percent last year, the real estate group said.

``A plausible scenario is that house prices will either move sideways or rise more slowly during the next few years,'' said Federal Reserve Governor Ben Bernanke in a speech March 8.

Builder Optimism

Homebuilders such as Horsham, Pennsylvania-based Toll Brothers Inc., the country's biggest luxury home-construction company, are betting on continued profit growth this year.

``For each of the five weeks since the end of our record- breaking first quarter, non-binding deposits, a precursor to contracts, have been the highest or second highest per community in those five weeks in the last ten years,'' said Robert I. Toll, president of Toll Brothers, in a statement March 8.

Home construction accounted for 5.2 percent of the $11 trillion gross domestic product in the fourth quarter.

Builders maintained their optimism about the market this month. An index of builder sentiment held at 69 in March, according to the National Association of Home Builders/Wells Fargo's measure, issued yesterday. Readings greater than 50 mean builders view market conditions as more positive than negative. The index has exceeded 60 since May 2003 and in December reached 71, the highest since September 1999.

The economy is expected to expand 4 percent in the current quarter, compared with 3.8 percent in the final three months of 2004, according to a Bloomberg survey published March 9. The median growth forecast for all of 2005 was 3.8 percent, compared with 4.4 percent growth in 2004 that was the fastest since 1999.


Post a Comment

<< Home