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Housing starts rebound
Latest reading on real estate market shows surprising strength, bucking recent signs of weakness.
December 20, 2005: 10:40 AM EST

NEW YORK (CNNMoney.com) - Home building rebounded in November, as the latest reading on real estate market strength showed surprising strength after some recent signs of weakness.

The Census Bureau reported that housing starts rose to an annual rate of 2.12 million in November, from a revised 2.02 million in October. It was the fourth best month on record for housing starts, and followed a sharp drop seen in the October reading.

Economists surveyed by Briefing.com forecast that starts would come in at a 2.02 million pace in the month, which would have been a slight uptick from the original reading.

Building permits, which are seen as an indication of builder confidence in the housing market, rose to 2.16 million from 2.10 million in October. Economists had looked for that number to slip to 2.09 million.

The drop in housing starts and permits in October, coupled with decreased confidence in a survey of builders and some softness seen in pricing have all led a number of real estate economists to project that the real estate market had reached its top, and that higher mortgage rates would lead to a slower real estate market in the year ahead.

Home builder Toll Brothers (Research) lowered its earnings forecast for 2006 and said the overall market for home building looked to be cooling off. The well respected UCLA Anderson Forecast also said the housing market appeared to be set to cool in 2006, and that it could result in 500,000 fewer home building jobs in the next couple of years.

But the report Tuesday was another sign of the underlying strength of the real estate market in the face of those higher rates. Mortgage financing firm Freddie Mac reports that the average 30-year fixed-rate mortgage was up to 6.33 percent in November, the highest it's been since July 2002, although rates have retreated slightly in the weekly readings so far this month.

There is a risk that continued strong building could create excess supply of new homes, and drive prices down. A separate report from the Census Bureau on new home sales through October shows the supply of new homes on the market has been rising steadily for the last year, with an increase every month since April. Overall there has been a 20 percent increase in the supply of new homes available since October 2004. And the average price of a new home has slipped during that period.

For a look at the housing market and what it means to you and other markets, click here.  Top of page

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