Housing data brightens U.S. economic growth outlook

Reuters

* U.S. building permits highest in nearly 5-1/2 years

* Single-family home prices surge in September

* Housing market resilient despite mortgage rate rise

* Consumer confidence slips in November

By Lucia Mutikani

WASHINGTON, Nov 26 (Reuters) - Permits for future U.S. homeconstruction hit a near 5-1/2 year-high in October and pricesfor single-family homes notched big gains in September,suggesting a run-up in mortgage interest rates has not derailedthe housing recovery.

The data releases on Tuesday were the latest signs ofstrength in the economy, despite headwinds from rising mortgagerates and last month's partial government shutdown.

"The reports reinforce the notion that the housing sector issuccessfully digesting the summer mortgage rate pop," said MikeEnglund, chief economist at Action Economics in Boulder,Colorado.

Building permits jumped 6.2 percent last month to an annualrate of 1.03 million units, the highest since June 2008, theCommerce Department said. It was only the second time sincemid-2008 that permits breached the 1 million-unit mark.

Last month's increase beat economists' expectations for a930,000-unit rate. Permits, which lead housing starts by atleast a month, rose 5.2 percent in September and were up 13.9percent from a year ago in October.

A separate report showed the S&P/Case Shiller compositeindex of home prices in 20 metropolitan areas jumped 13.3percent in September from a year ago, the strongest gain sinceFebruary 2006.

Stocks on Wall Street were little changed in thinpre-holiday trade, while prices for U.S. Treasuries rose. Thedollar was weaker against a basket of currencies.

House prices have largely been driven by a supply squeeze asa glut of foreclosed properties clears. But the combination ofrising prices and mortgage rates means some potential buyers arebeing pushed out of the market.

This will dampen demand and is expected to gradually slowthe pace of house price increases in coming months.

"While demand for housing remains as strong as ever, creditis tight, flood insurance rates are on the rise, mortgage ratesare elevated and income growth has not kept pace with pricegrowth," said Stephanie Karol, a U.S. economist at IHS GlobalInsight in Lexington, Massachusetts.

A Reuters survey published on Tuesday forecast home pricesrising 6.5 percent next year, roughly half the pace expected in2013.

Interest rates have risen sharply since May as marketsanticipated the Federal Reserve would start cutting back on itsmonthly bond purchases this year, with the 30-year fixedmortgage rate surging nearly a full percentage point.

It hit 4.49 percent in September, the highest since July2011, according to mortgage lender Freddie Mac. But rates havebeen retreating as expectations of a Fed taper are pushed toearly next year, averaging 4.19 percent last month.

FED CLOSER TO TAPERING?

Some economists said the housing data, combined withstronger-than-expected October nonfarm payrolls and retail salesreports, raised the risk the Fed could scale back its massivemonthly bond purchases as early as December.

"The jump in building permits means that another obstacle totapering is now removed," said Harm Bandholz, chief U.S.economist at UniCredit Research in New York.

"The weakness in housing starts and new home sales wereprobably one important reason - besides the slowdown in payrollgains - why the Fed did not taper in September."

The U.S. central bank noted at last month's meeting that therecovery in the housing sector had slowed somewhat in recentmonths. Fed policymakers next meet on Dec. 17-18.

Th strong march in house prices, rising stock market pricesand improvements in job gains are not helping to lift householdspirits, which could be a challenge for retailers during theholiday shopping season.

In a third report, the Conference Board said its index ofconsumer attitudes fell to 70.4 this month from 72.4 in October.Consumers' labor market assessment was little changed.

But while building permits are not counted in gross domesticproduct (GDP), they are a key indicator of economic activity andthe sturdy gains in both September and October should easeconcerns the housing market recovery was stalling.

"The building permits reports suggest some upside risks toGDP growth in the coming quarters from construction activity,"said Millan Mulraine, senior economist at TD Securities in NewYork.

Though higher mortgage rates have slowed the pace of homesales, demand for accommodation as household formation continuesto recover from multi-decade lows is expected to keep supportingresidential construction.

Permits for the multifamily home sector surged 15.3 percentin October and approvals for buildings with five units or morereached their highest level since June 2008. Single-family homepermits, the largest segment of the market, rose 0.8 percent.

The Commerce Department postponed the release of figures onhousing starts and completions for September and October untilDec. 18 because the collection of data was affected by the16-day shutdown of the government last month.

November data also will be published at that time. Thepartial shutdown of the federal government also delayed thepublishing of the September and October permits reports.

View Comments