Low mortgage rates build up new-home construction starts

Associated Press

WASHINGTON — Home builders last month broke ground on the largest number of projects since July, with low mortgage rates and mild weather helping the housing market remain a bright spot in the gloomy economy.

The Commerce Department reported Tuesday that housing construction rose to a seasonally adjusted annual rate of 1.65 million units in November, an 8.2 percent increase over the previous month.

November’s rebound came after housing starts fell by a revised 4 percent in October, a larger drop than the government previously had reported.

The stronger than expected performance last month occurred even as consumer confidence fell to a 7 1/2-year low in November and the employment picture worsened. The nation’s unemployment rate climbed from 5.4 percent to 5.7 percent, and payrolls fell sharply.

Low mortgage rates are a key reason that the housing and construction markets have remained stable even as the national economy has been suffering through a recession since March.

The average interest rate on a 30-year fixed-rate mortgage was 6.7 percent in November, compared with 7.7 percent for the same month a year ago. In early November, mortgage company Freddie Mac reported, rates dipped to 6.45 percent, the lowest level in 30 years of record-keeping. Since then, rates have moved higher, rising to 7.09 percent last week.

"Home buyers likely rushed to take advantage of low rates before they moved higher," said Merrill Lynch economist Karen Dexter. "Warm weather also contributed to the jump."

Builders said low interest rates and solid appreciation in housing values are motivating new home buyers. A survey released Monday by the National Association of Home Builders cited those factors as reasons that builders are more optimistic about sales prospects for December and the next six months.

To lure prospective buyers, more home builders are offering incentives, such as including some options at a discount or no charge, and paying for buyers’ closing costs, said David Seiders, the association’s chief economist.

In November, construction of single-family homes rose 3.2 percent to 1.26 million units after registering a 3.4 percent decline the month before.

Construction of apartments, condominiums and other multifamily housing soared by 30.1 percent last month to 346,000, following a 2.9 percent drop in October.

By region, housing starts rose by 20.1 percent in the Northeast to 173,000. In the Midwest, they grew by 20.5 percent to 382,000, and in the West, starts rose by 12.7 percent to 372,000. In the South, however, they fell by 1.6 percent to 718,000.

"A few months from now, these housing starts are going to require appliances and furnishings," said Ken Mayland, economist with ClearView Economics. "This is all to the good for the economy."

Economists are hopeful that the Federal Reserve’s 11 interest-rate reductions this year will induce consumers to spend and businesses to invest, setting the stage for an economic recovery next year.