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Housing shows strength
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December 18, 2001: 3:56 p.m. ET
November housing starts, building permits rise more than expected.
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NEW YORK (CNN/Money) - Housing starts jumped in November to the highest level since July, the government said Tuesday, as unseasonably warm weather last month gave a surprisingly strong boost to the nation's housing market.
Builders broke ground on new homes and apartments at a rate of about 1.65 million units in November, up 8.2 percent from October's revised 1.52 million annual rate, the Commerce Department said. The number topped forecasts for a rate of about 1.54 million, according to economists surveyed by Briefing.com.
Building permits, an indicator of builders' expectations, rose to a 1.56 million rate from October's revised 1.49 million, the department reported. Building permits topped forecasts of 1.47 million, according to Briefing.com.
"This is an exciting number, but it was warmer in November than usual," said Anthony Chan, chief economist at Banc One Investment Advisors. "The warm weather is the equivalent of zero-percent financing on automobile sales. You're going to see this work itself off in months to come."
Temperatures across much of the country were warmer than usual in November, which allowed more construction than is usual. The total number of homes under construction rose to about 1.02 million from 1.01 million in October - the highest since November 1987, the department said.
On Wall Street, stock prices rose sharply as investors cheered the stronger-than-expected economic data and solid earnings reports from two big electronics retailers. Treasury bond prices also rose.
Despite a U.S. recession that some economists think began in March, the housing market has held up relatively well this year, supported by low mortgage rates. The average interest rate on a 30-year fixed-rate mortgage was 6.7 percent in November, down from 7.7 percent a year earlier.
Still, the Sept. 11 attacks, a rising unemployment rate and constant talk of a recession have hurt consumer confidence and spending. To bolster consumers, the Federal Reserve has cut its target for short-term interest rates 11 times this year.
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But fears about the prospect of inflation - spurred in part by the aggressive rate cuts and the prospect of a return to U.S. government budget deficits - have pushed up long-term bond rates back up recently, and mortgage rates have also moved off their recent lows and inched higher.
"There's no question these higher mortgage rates will take some of the shine off the resiliency in the housing market," Chan said.
The news followed Monday's report by the National Association of Homebuilders that its monthly survey of homebuilders showed a dramatic rebound in optimism, with its index rising to 57 in December from November's 49, the biggest one-month gain since February 1998.
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Economists expect a recovery in the general economy sometime next year, though they are divided about when that recovery will come. The most optimistic expect it to happen in the first quarter - if it hasn't started already - while others think it will be delayed until the second half of the year.
By region, housing starts jumped 20.1 percent in the Northeast, 20.5 percent in the Midwest, and 12.7 percent in the West, but they dipped by 1.6 percent in the South, the largest market for new homes. 
- from staff and wire reports
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