Residential Housing Starts Dip in April

May 18, 2004

By Jeannine Aversa
The Associated Press

WASHINGTON - The number of housing projects builders broke ground on dipped in April, but even with the decline the level of activity still suggested that the residential construction sector of the economy remains healthy.

The Commerce Department reported Tuesday that the number of residential units under way clocked in at a seasonally adjusted annual rate of 1.97 million, representing a 2.1 percent decline from March.

The slowdown came after a brisk March, where builders broke ground on 2.01 million units, on an annualized basis, according to revised figures. That was even stronger than the government previously estimated and represented a sizable 6.1 percent increase from February.

"Housing starts declined slightly from March's extremely high level but remained quite vigorous," said Stephen Stanley, chief economist at RBS Greenwich Capital.

With mortgages rates on the rise, economists expect the housing market to cool a bit this year from what has been red-hot activity seen over the last several years. But analysts still expect the housing market to remain in good shape.

By region, housing construction rose in the Midwest by 4.5 percent in April to a pace of 395,000. In the South, residential projects increased by 1.2 percent to a rate of 952,000 and in the Northeast, residential construction nudged up by 0.6 percent to a rate of 175,000. But in the West, housing starts plunged by 13.7 percent to a pace of 447,000.

Home builders, meanwhile, feel good about sales prospects for May as well as for the next six months, even as mortgage rates have been moving upward.

Rates on 30-year mortgages climbed last week to 6.34 percent, marking the eighth consecutive weekly increase since rates hit a low for the year of 5.38 percent the week of March 18, according to figures tracked by Freddie Mac, the mortgage giant.

Mortgage rates are rising as Wall Street investors bet that the Federal Reserve will move to boost short-term interest rates next month. The Fed has held a key short-term rate at 1 percent since last June. That rate is now at a 46-year low.

Some economists believe that the improved job climate will make prospective buyers feel more comfortable about making a home purchase and should help offset some of the impact of rising mortgage rates.

"Robust job growth and solid home-price appreciation and favorable interest rates that remain low and attractive by historical standards point to an upbeat outlook for housing," said National Association of Home Builders President Bobby Rayburn.

Home sales, powered by super-low mortgage rates, set record highs last year. Some economists believe home sales this year will come in close to record highs.

Tuesday's report also showed that housing permits - a good barometer of current demand - rose by 1.2 percent in April to an annual rate of nearly 2 million units.

Copyright 2004 The Associated Press

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