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U.S. housing starts highest in 20 years

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by Daily Commercial News last update:Aug 15, 2006

Construction of new homes and apartments in the United States rose 4.7 per cent in January to the highest level in over two decades as low mortgage rates continued to power the nation’s housing industry.

January numbers through the roof

WASHINGTON

Construction of new homes and apartments in the United States rose 4.7 per cent in January to the highest level in over two decades as low mortgage rates continued to power the nation’s housing industry.

The U.S. Commerce Department reported Wednesday that builders began construction on 2.16 million units at a seasonally adjusted annual rate last month, up from a rate of 2.06 million units in December.

The January increase caught economists by surprise. They had been forecasting a decline of around 3.7 per cent, reflecting rain in the West and winter storms in the East, which had been expected to hold down construction activity.

Instead, builders, enthused by continued low mortgage rates, broke ground on the largest number of new homes and apartments since February 1984 when construction starts hit an annual rate of 2.26 million units.

In other economic news, the Federal Reserve reported that output at American factories, mines and utilities was unchanged in January after a sharp 0.7 per cent increase in December. The January performance was a forecasting a healthy increase in industrial production of around 0.3 per cent for the month.

The report on housing starts showed that construction of single-family homes rose 2.7 per cent to 1.76 million units, an all-time high, while construction of apartments was up a sharp 14 per cent to 399,000 units.

And in a sign that housing activity should remain strong in coming months, applications for building permits rose by 1.7 per cent to an annual rate of 2.1 million units in January with permits for single-family homes up 0.7 per cent and permits for apartments rising an even stronger 5.3 per cent.

The housing industry has been the standout performer in the three-year old economic expansion as baby boomers, now in their peak earning years, seek bigger homes and vacation getaways and their children are entering the housing market for the first time.

The industry has been bolstered by the lowest mortgage rates in more than four decades.

Those rates have stayed low even though the Federal Reserve began a campaign last June to raise rates gradually to make sure a rebounding economy does not generate unwanted inflation.

Freddie Mac reported last week that rates on 30-year mortgages had fallen for a sixth consecutive week to 5.57 per cent.

Low mortgage rates propelled sales of both new and existing homes to all-time highs in 2004, the fourth straight year that sales in both categories have set records.

Analysts are forecasting that housing will enjoy another good year in 2005 with sales expected to decline by around three per cent, a decline that would still give the country the second-highest levels for sales of new and existing homes.

For January, the strength in housing construction came in the South, where building starts rose by 18.8 per cent to an annual rate of 1.14 million units. Also showing strength last month was the West, where starts rose by 1.9 per cent to an annual rate of 540,000 units.

However, activity fell in the two other regions of the country.

Housing starts dropped by 23.9 per cent in the Northeast to an annual rate of 150,000 units and fell 12.5 per cent in the Midwest to an annual rate of 330,000 units.

The Associated Press

last update:Aug 15, 2006

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