U.S. Housing Starts Are Surprisingly Strong

By John S. McClenahen Buoyed by continuingly low interest rates and what seems to be an improving U.S. labor market, U.S. housing starts for privately owned residences were at a seasonally adjusted annual rate of 1.960 million in October, the U.S. Commerce Department reported Nov. 19. The figure, the highest monthly number since January 1986, is 2.9% higher than the revised September figure of 1.905 million, 18.6% higher than the October 2002 rate of 1.653 million, and substantially higher than the 1.850 million rate economists generally expected. Starts for single-family homes alone were at an annual rate of 1.617 million in October, 5.7% higher than the September rate of 1.530 million. How long will housing stay strong? Building permits for privately owned housing in October suggest weakening is not imminent. They were at a seasonally adjusted annual rate of 1.973 million, 5.2% higher than the September rate of 1.875 million. Building permits for single-family homes were at an annual rate of 1.535 million in October, 3.2% higher than September's rate. "Low interest rates and an improving jobs picture should continue to support housing activity," says David A. Rosenberg, chief North American economist at Merrill Lynch & Co., New York. Nevertheless, the Housing Market Index of the Washington, D.C.-based National Association of Home Builders declined this month to 69 from 72 in October. "The implication is that home sales are ebbing slowly," says Maury Harris, chief U.S. economist at UBS Investment Research, New York. "Starts are likely to follow suit eventually, although [the] rise in October building permits suggests the fall-off may not be immediate."

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