Home building reaches highest level since 1986

By Jeannine Aversa
Associated Press

The Commerce Department reported yesterday that builders broke ground on 1.96 million units in October, the highest level of residential construction activity in 17 years. The strength of the housing market has been helped by low mortgage rates. Associated Press

The Commerce Department reported yesterday that builders broke ground on 1.96 million units, at a seasonally adjusted annual rate, representing a 2.9 percent increase from September's pace.

The level of activity in October marked the strongest monthly performance since January 1986 and left economists marveling at the strength of the housing sector, which has hummed along throughout the economic slump as low mortgage rates have beckoned buyers.

Economists were predicting residential construction would decline in October to a rate of around 1.85 million units.

"U.S. housing starts blew away estimates," said Sherry Cooper, chief economist at BMO Nesbitt Burns. "The economy is looking increasingly steamy."

All of the vigor last month came from new single-family home projects, which clocked in at a record high pace of 1.62 million units, a 5.7 percent increase from September. Construction of apartments, condos and other multifamily housing declined by 3 percent in October to a rate of 319,000 units.

On Wall Street, the good news on housing construction lifted stocks. The Dow Jones industrials gained 66.30 points to close at 9,690.36.

By region, total housing construction — single and multifamily homes — jumped in the West by 17.7 percent from September to October to an annual rate of 526,000, the highest level since December 1986. In the South, residential projects clocked in at a rate of 898,000 — the best performance since January 1986 — and a 4.9 percent increase from September's activity.

But in the Northeast, residential building projects plunged by 18 percent to a rate of 146,000, and in the Midwest, they fell by 8 percent to a rate of 390,000.

After booming sales in the summer and fall, home builders are slightly less bullish about sales prospects for November as well as for the next six months, according to a monthly survey by the National Association of Home Builders.

"We're seeing some slowdown in visitors to model homes," said Kent Conine, a home builder from Dallas who also is president of the association.

Still, the association's chief economist, David Seiders, said, "All the fundamentals remain in place for a healthy housing market — including mortgage rates in the 6 percent range, reviving consumer confidence and impressive home-price performance."

Sales of both new homes and previously owned homes are on track to reach record highs this year, economists predict. Low mortgage rates are a main reason behind the brisk sales, they say.

Rates on 30-year mortgages slid to 5.21 percent, the lowest level in more than four decades, in the middle of June. Since then, rates on these benchmark mortgages have bounced up and down. Last week, rates on benchmark fixed-rate 30-year mortgages stood at 6.03 percent.

Federal Reserve policy-makers are expected to hold a main short-term interest rate at a 45-year low of 1 percent when they meet next on Dec. 9. That's good news for one-year adjustable rate mortgages, which averaged 3.76 percent last week.

Yesterday's report also showed that housing permits — a good barometer of current demand — rose by 5.2 percent in October to a rate of 1.97 million units, the strongest pace since February 1984. That reflected a record high level of permits for single-family homes, which came to a rate of 1.54 million units.

Economists said October's construction figures bode well for solid economic growth of at least a 4 percent rate in the current quarter.