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Housing starts snap back
Starts on new homes post biggest gain in 7 years after tumbling in November; reading tops forecasts.
January 19, 2005: 3:30 PM EST
By Katie Benner, CNN/Money staff writer

NEW YORK (CNN/Money) - Housing starts jumped 10.9 percent in December, the biggest gain in seven years, bouncing back from a very weak reading the month before, the government said Wednesday.

The Commerce Department reported that builders broke ground on new homes and apartments at a seasonally adjusted annual rate of 2 million last month, compared to a revised 1.8 million in November.

Economists surveyed by Briefing.com forecast had December starts would rise 9 percent to about a 1.92 million pace.

"The jump was a bounce back from November," said Anthony Chan, senior economist with JPMorgan Fleming Asset Management.

Starts took their biggest tumble in 11 years in November, leading some analysts to worry that cracks in the nation's housing market would start to show.

Though December starts surged from November, the pace of new construction in December was still 3 percent below the pace a year earlier.

"The weather increased the erratic nature of the report," said Gregory Gieber, vice president and analyst at AG Edwards & Sons. "Places like Florida saw building delays in November, and now they're catching up in December."

New construction rose nationwide last month, the department said in its report, with the largest gains in the Midwest and the South.

The housing market overall has stayed surprisingly strong despite last year's uptick in interest rates, which nevertheless remain near historically low levels.

In fact, the five strongest months for housing starts in the last 20 years have all occurred within the last year, spurred by low mortgage rates, according to Briefing.com.

Housing losing steam?

JPMorgan's Chan noted that while new construction bounced back last month, building permits -- an indicator of builders' future plans -- did not.

December building permits edged down 0.3 percent to a seasonally adjusted rate of 2 million last month.

"I would say that momentum (in the housing market) probably will not continue, since you don't see the same strength in permits that you do in construction," said Chan

"With the permit figure, you can really see that the rise in starts was a combination of bounce back from November and the effect of people buying into the market because they anticipate rising interest rates," he added.

November's big drop in construction had some analysts worried that the housing market is in for a steep fall, but Gieber said the market bubble story has been overplayed.

"Everyone is saying the housing market will decline in 2005," he said. "Even with the anticipated fall, 2005 will be the second best year ever for single-family housing."

"If rates move up, housing will move down," Gieber said. "But as long as we see relatively low interest rates and employment continues to pick up, housing will remain strong."  Top of page

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