U.S. single-family housing starts, permits show recovery on track

Reuters

* Housing starts rise 0.9 percent, less than expected

* Permits fall 3.8 percent on weak multi-family sector

* Single-family permits rise to five-year high

By Lucia Mutikani

WASHINGTON, Sept 18 (Reuters) - Groundbreaking for U.S.

single-family homes rose in August and permits for future

construction hit a five-year high, pointing to resilience in the

housing market recovery in the face of higher mortgage rates.

The Commerce Department said on Wednesday single-family

starts surged 7.0 percent to an annual rate of 628,000 units

last month, the highest level in six months. Single-family homes

are by far the largest segment of the market.

Groundbreaking for the volatile apartments and condominiums

segment, however, tumbled 11.1 percent. That curbed the rise in

overall housing starts to an 891,000-unit pace, far less than

the 917,000-unit rate economists had expected.

While higher mortgage rates have slowed the pace of home

sales, demand for accommodation as the rate of new household

formation recovers from multi-decade lows is expected to keep

residential construction supported.

"Homebuilding seems to be holding up decently in the higher

mortgage rate environment, probably due to the support of strong

underlying fundamentals - thin inventories and steady household

formation," said Guy Berger, an economist at RBS in Stamford

Connecticut.

Mortgage rates have risen in anticipation of the Federal

Reserve reducing the $85 billion in bonds it has been buying

each month to keep interest rates low.

The U.S. central bank, however, surprised markets on

Wednesday by sticking to its bond-buying program. The Fed said

tightening financial market conditions, if sustained, could slow

the pace of improvement in the economy and labor market.

Stocks on Wall Street rallied on the Fed statement, with the

Standard & Poor's 500 index hitting a record high. The

dollar dropped to a seven-month low against the euro, while U.S.

Treasury debt prices soared.

RESIDENTIAL CONSTRUCTION SLOWING

In a separate report, the Mortgage Bankers Association said

applications for loans to buy homes rose last week as mortgage

rates eased off recent highs. Since early May, rates on 30-year

mortgages have risen about 1.2 percentage points.

Still, mortgage rates remain historically low and economists

do not expect the increase to throw the housing recovery off

track. Homebuilding is expected to slow a bit this quarter from

the second quarter, but still contribute to growth this year.

Though residential building only accounts for 3.1 percent of

gross domestic product, economists estimate that for every

single-family home constructed, three jobs that last for a year

are created.

Last month, permits for single-family homes rose 3 percent

to their highest since May 2008.

A survey on Tuesday showed confidence among single-family

homebuilders held near an eight-year high in September, with

builders upbeat about prospective buyer traffic.

"We expect to see a more meaningful rebound in construction

activity in the coming months," said Millan Mulraine, senior

economist at TD Securities in New York.

Permits for multifamily homes, however, dropped 15.7 percent

last month, pushing down overall permits 3.8 percent to a

918,000-unit pace.

The drop in both multi-family starts and permits suggested

higher mortgage rates could be making developers a bit cautious

about taking on new projects. Builders have also been

complaining about expensive materials and a shortage of labor.

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