|
Housing starts jump
|
 |
August 17, 1999: 10:57 a.m. ET
July building rate for new homes rises 5.7%, all but erasing June decline
|
NEW YORK (CNNfn) - Builders broke ground on far more new homes in July than economists were expecting, despite the rising trend in mortgage rates.
New home construction, also known as housing starts, rose 5.7 percent to an annual rate of 1.661 million units, the Commerce Department said Tuesday.
Making way for new neighbors
That topped the 2.5 percent rise economists were anticipating, but still fell below the July 1998 rate of 1.719 million units.
The Commerce Department said starts on single-family homes in July climbed 4.2 percent, while starts on apartments rose 12.1 percent.
In June, housing starts fell 5.8 percent for an annual rate of 1.571 million units.
The bond market, in reaction to news of both housing starts and a 0.3 percent rise in consumer prices in July, sent the 30-year Treasury up 26/32 of a point in price for a yield of 6.03 percent soon after the data were released.
What do starts mean for rates?
Housing starts are among the factors the Federal Reserve takes into consideration in assessing the state of the economy and whether an interest rate hike is needed to temper economic growth. Many economists said they are expecting the Fed to raise rates when the policy-making Open Market Committee meets Aug. 24.
Maureen Allyn, chief economist at Scudder Kemper Investments, still believes the Fed will raise rates 25 basis points next week, and said the housing numbers together with a strong gain in industrial output in July only confirm that suspicion.
"I believe this is kind of the last little tack to get this picture hung," Allyn said, especially given "that the housing sector was about the only sector economists could point to that looked like it was definitely slowing down."
Likewise, Standard & Poor's chief economist David Blitzer said the "housing starts very much support" a 25-basis point hike in August.
But some analysts said the housing numbers are unlikely to affect the Fed's thinking one way or the other.
"I don't think they'll have much of an influence. If anything [the numbers] show housing isn't yet reacting to higher interest rates," said Rosanne Cahn, chief economist at CS First Boston, who does not see a rate hike by the Fed between now and the end of 2000.
Mortgage rates have been climbing steadily since the last week in July amid renewed inflation fears.
Cahn, who believes housing starts will begin to decline in coming months, thinks the data signal a "buy-in-advance motivation" in order to secure a good interest rate before they rise too high, but she said it is hard to tell how long that motivation will last.
Like Cahn, John Ryding, senior economist at Bear Stearns, doesn't think the housing numbers will move the Fed.
"They have to ponder the (Consumer Price Index) and (Producer Price Index) numbers" and on that basis "we don't think they'll raise rates," he said. The CPI number, a key inflation gauge, rose in line with expectations, while the PPI rose less than expected.
Ryding added, however, that the Fed may adopt a tightening bias at the August meeting.
Last week, the Fed said the economy still is going strong but it did not see a broad rise in inflation. Among the constraints the Fed noted were shortages in labor and supplies in the home construction sector. 
|
|
|
|
|
|
Commerce Department
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
