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U.S. housing starts fall
June 19, 2001: 10:29 a.m. ET

Builders broke ground on fewer new projects in May but still topped forecasts
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NEW YORK (CNNfn) - The housing market in the United States lost a little strength in May, the government reported Tuesday, but still was stronger than Wall Street forecasts as a bright spot in the sluggish economy continued to shine.

Housing starts fell 0.4 percent last month to an annual rate of 1.622 million units after rising a revised 2.3 percent in April to 1.629 million, the Commerce Department reported. Economists polled by had expected a rate of 1.6 million units.

Building permits, a gauge of sentiment among builders about the economy in the months ahead, rose 2 percent to an annual rate of 1.621 million from a revised 1.587 million in April, the Commerce Department said.

Housing starts and building permits both are stronger than they were in May of 2000, when they were at rates of 1.573 million and 1.54 million, respectively.

Relatively low long-term mortgage rates have kept the domestic housing market strong despite a slowdown in many other parts of the economy. In May, the average rate on a 30-year fixed-rate mortgage was 7.14 percent, compared with 8.52 percent a year earlier.

"We expect that, as (home) sales continue to rise, hitting new highs, builders will become more confident that the housing market will remain largely immune to the problems in the rest of the economy, and starts will rise substantially," said Ian Shepherdson, chief U.S. economist with High Frequency Economics Ltd.

The rate of housing starts varied widely from region to region, with the Northeast experiencing a sharp drop in the rate of total starts and the Midwest seeing a marked increase.

U.S. stock markets rose in early trading Tuesday, mostly on the back of a better-than-expected quarterly earnings report from Oracle Corp. (ORCL: up $1.93 to $16.77, Research, Estimates), the nation's No. 2 software maker.

While mortgage rates are low, the Federal Reserve has been cutting short-term interest rates aggressively this year in an effort to strengthen other areas of the economy, particularly consumer spending.

Shepherdson said the data would have no impact on the Fed's thinking when it meets June 26 and 27 to discuss cutting interest rates for the sixth time this year, but the housing market could start to contribute to inflation pressures next year if home prices and rents rise.

Shepherdson said he expects the Fed to cut short-term interest rates at its next meeting by half a percentage point to 3.5 percent.

Separately, U.S. Treasury Secretary Paul O'Neill expressed optimism that U.S. economic growth will pick up in the coming months, saying he sees a "real possibility" that growth will quicken in the second half of 2001.  graphic


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Fed cuts interest rates for fifth time in 2001 - May 15, 2001


Housing starts report

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