NEW YORK (CNN/Money) - Housing starts slipped 2.1 percent in April, a government report showed Tuesday, as the level of building just missed Wall Street expectations.
The Commerce Department report showed housing starts at a seasonally-adjusted annual rate of 1.97 million. That's down from the 2.01 million rate in March and the 1.98 million rate for April forecast by economists surveyed by Briefing.com
Building permits, a sign of builders' confidence in the market, rose 1.2 percent in April to an annual rate of just under 2 million from the 1.98 million rate in March, surpassing the Briefing.com consensus forecast of 1.96 million. The permits were up 11 percent from April 2003 levels.
Mortgage rates fell to near 40-year lows in March but have risen steadily since then on anticipation that the Federal Reserve is preparing to raise interest rates.
But the rate hike is partly due to signs of a strengthening economy, including a stronger employment outlook. Better employment can outweigh any weakness in the market caused by higher mortgage rates, according to economists.
"While concerns about the impact of rising interest rates will be a frequent theme of discussion in the press and financial markets, homebuilders and realtors are confident that favorable demographics and an improved economy/job market should help, at least for a while, to compensate for the dampening effect of the upturn in borrowing costs on housing demand," said Steve Stanley, economist with RBS Greenwich Capital Markets.
Even with the slip in April, housing starts came in 20 percent ahead of April 2003 levels.
"Keep in mind, last year we set records for single-family construction," said economist Joel Naroff. "The April annualized pace for single-family starts was the fifth highest on record. The other four came within the last six months. Will the pace keep up? At least for a while."
The economists said that while mortgage rates are heading up, they're still low by historic levels, and some home buyers may be rushing to buy a new home before rates go up any more.
"Single family housing starts, which correlate closely with changes in average mortgage rates, remain robust for now," said Gina Martin, economist with Wachovia Securities. "We should start to see this series moderate in future months as higher mortgage rates keep a lid on borrower interest. However, mortgage rates have plenty of room to move before they even reach pre-recession levels. As a result, we may not see a slowdown in housing construction until the autumn months of this year."
Much of the decline in April was due to a drop in starts of building with five or more homes, which fell to an annual rate of 315,000 from 360,000 in March. But the number of permits for those apartment buildings showed the second straight strong monthly increase to an annual rate of 354,000 from 331,000, suggesting starts for those units should resume soon.
Single-family home starts in April came in at an annual rate of 1.61 million, down from 1.62 million in March.
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