Housing starts at 4-month high
WASHINGTON (Reuters) - Groundbreaking for new U.S. homes jumped in August to a four-month high, a tentative sign of stability in the housing market after steep declines brought by the end of a homebuyer tax credit.
While the data on Tuesday further allayed fears that the recovery from the worst recession since the Great Depression was at risk, the Federal Reserve took a step toward a new round of monetary easing to stimulate growth.
In a statement at the end of a one-day meeting, the U.S. central bank said its policy-setting committee "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.
Analysts said the Fed was likely to resume purchases of longer-term U.S. government bonds by year-end to keep interest rates low, but it would depend on economic data.
"By November, we believe that the evidence will continue to accumulate of very weak growth and continued disinflationary pressures," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington Massachusetts.
"There are greater-than-even odds that the FOMC will vote to take proactive measures on quantitative easing at the November meeting."
Housing starts rose 10.5 percent, the largest increase since November, to an annual rate of 598,000 units, the Commerce Department said. Financial markets had looked for a rise to just a 550,000-unit rate.
Prices of U.S. government bonds rallied as investors welcomed the Fed's bias toward further monetary policy easing, but stocks ended flat to marginally lower. The dollar fell sharply against the yen and the euro.
Construction was bolstered by a big jump in activity in the volatile multi-family segment, which increased by nearly a third to an annual rate of 160,000 units in August. Single-family starts increased 4.3 percent to a 438,000-unit pace, the highest since June.
But analysts were concerned that most of the gains were coming from the multi-family segment, a smaller portion of the housing market, and saw only a subdued recovery.
The housing market has hit a soft patch following the end of a popular homebuyer tax credit in April and a survey on Monday showed sentiment among home builders remained mired at an 18-month low in September.
Although the recession ended in June last year, the unemployment rate is at a stubbornly high 9.6 percent, and there is an oversupply of homes on the market.
"It is reasonable to believe that the post-tax credit plunge in housing activity, both sales and construction, is over, but we do not expect to see a strong recovery any time soon," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.
"Activity will likely creep higher as great affordability pulls people into the market, but that's about the best we can hope for in the foreseeable future."
Last month, new building permits for future home construction rebounded 1.8 percent to a 569,000-unit pace, lifted by a 9.8 percent rise in permits for multi-family units. Analysts had expected a 560,000-unit pace. Permits for single family homes fell for a fifth straight month.
(Editing by Dan Grebler)