Housing starts at 4-month high

WASHINGTON Tue Sep 21, 2010 4:36pm EDT

Homes under construction are seen in Walnut, California in this February 16, 2010 file photo. REUTERS/Mario Anzuoni

Homes under construction are seen in Walnut, California in this February 16, 2010 file photo.

Credit: Reuters/Mario Anzuoni

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.

WEAK RECOVERY

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)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
blackghost wrote:
last week the country was sinking into a double dip recession this week the recession ended a year ago.last month housing starts at a record low .this month they look good!the US is in a depression. nothing looks good.the country is without a president and people are begining to get hysterical!

Sep 21, 2010 10:09am EDT  --  Report as abuse
Try looking at it the other way, Blackghost. For the past year, we’ve been getting slowly increasing amounts of food news. Unfortunately it’s been mired under lies and fear-mongering. The conservatives said from the beginning that they wanted to see Obama fail, so they’ve painted every success as a failure. From health care reform to economic recovery, the American people have been fooled into thinking something good is something bad. But the truth comes out. When 70% of Americans see their health care premiums go down thanks to the reform, they will see the truth. As unemployment, GDP, and the stock market continue to rise, they will see the truth. Here, in this article, we can see that the housing market is improving, and it is the truth.

Sep 21, 2010 1:32pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Full focus