Building Starts on Homes Took Strong Jump in June

Construction starts on new homes rose unexpectedly in June, the Commerce Department said today, in the latest evidence of the resiliency of the housing market.

"So far, the strong job market and strong consumer confidence have been winning the tug-of-war against higher interest rates," said Eileen Neely, an economist with the Federal National Mortgage Association, known as Fannie Mae.

Housing starts rose 1.3 percent, to 1.48 million units at a seasonally adjusted annual rate, in June after retreating a revised 3.3 percent in May. The May rate was up from a previously reported drop of 4.7 percent. Many economists had been expecting a small decline in housing starts for June.

In addition, single-family construction -- 80 percent of total starts -- reached a two-year high.

The department also said that starts in April and May were even stronger than originally estimated. They totaled 1.51 million in April, rather than 1.50 million, and 1.46 million in May, rather than 1.43 million.

The national picture in June was mixed, however. While overall starts were up in the South and West, they slipped in the Northeast and Midwest. And the volatile multifamily sector posted a double-digit decline.

And many analysts expect housing starts to begin to slow this summer as mortgage rates continue to rise.

"It won't be a slump, but we won't have the breakneck pace we saw during the first half of the year," Ms. Neely of Fannie Mae said. "One indication of a slowdown already is showing up" in building permits, she said.

Applications for building permits, a gauge of builder confidence and future activity, slipped 2.5 percent in June to a 1.42 million rate.

It was the second consecutive decline.

A survey by the National Association of Home Builders also suggested that the market might be leveling off.

"The gradual decline occurs as pent-up demand from the unusually severe winter months runs its course and home buyers begin to slow the pace of purchases as a result of rising interest rates," the association said.

During June, 30-year fixed-rate mortgages averaged 8.32 percent, up from 8.09 percent in May and matching the average in April 1995.

By last week, they had risen to 8.42 percent, meaning the monthly payments on a $100,000 mortgage would be about $100 more than they would last January, when rates averaged 7.03 percent.

Still, Paul Taylor, economist with America's Community Bankers, said that even at 8 percent, mortgage rates were still "at a generational low for a lot of people."

Single-family starts shot up 7.4 percent, to a 1.225 million rate, wiping out a 5.6 percent loss a month earlier.