Tuesday, November 20, 2001

Builders broke ground on fewer housing projects in October, showing caution in the face of sinking consumer confidence and rising unemployment.
Housing construction declined by 1.3 percent last month to a seasonally adjusted annual rate of 1.55 million housing units, the lowest level in 10 months, the Commerce Department said yesterday.
While the drop was a lot less steep than many analysts were expecting, it did represent a pullback by builders. In September, housing construction rose by a solid 0.8 percent.
“The feeling among builders is certainly one of caution,” said David Seiders, chief economist for the National Association of Home Builders. “We’re getting signals from the field that when it comes to speculative building building without a contract in hand builders are playing it closer to the vest.”
On Wall Street, however, stocks rose on the hopes that the worst is over for the market and the economy. The Dow Jones Industrial Average gained 109.47 points to close at 9,976.46.
The dip in overall housing construction reflects a climate of greater economic uncertainty for builders. Consumer confidence plunged in October to its lowest level in 71/2 years, and the nation’s unemployment rate rose from 4.9 percent in September to 5.4 percent factors that can make Americans less inclined to make big-ticket purchases such as a home.
Single-family home construction fell by 1.2 percent in October, after a 1.1 percent decline in September.
Construction of apartments, condominiums and other multifamily housing rose by 1.9 percent following a 3.4 percent gain.
By region, housing starts rose by 5.3 percent to a rate of 140,000 in the Northeast. They grew by 14.3 percent in the Midwest to a rate of 328,000. In the South, starts held steady at a rate of 744,000, and in the West, they declined by 16.7 percent to a rate of 340,000.
Housing permits, a good barometer of current demand, fell by 3.6 percent in October to rate of 1.47 million, the lowest since December 1997.
“This might indicate that starts in the remaining months of the year could inch down, but thankfully, a big swoon does not appear to be in the cards,” said economist Ken Mayland, president of ClearView Economics.
Housing activity, aided by low mortgage rates, has helped to support the nation’s economy. The average rate on a 30-year fixed rate mortgage in October was 6.6 percent, down from 7.8 percent for the same month a year ago.
“Lower mortgage rates have, to date, offset much of the weakness stemming from the deteriorating job market,” said Merrill Lynch economist Stan Shipley. “However, speculative housing starts should suffer as homebuilders’ confidence was shaken following the September 11 tragedy.”
Rates for 30-year mortgages dropped to 6.45 percent two weeks ago, the lowest level in 30 years of record keeping, according to a report by Freddie Mac, the mortgage company. But rates edged up last week to 6.51 percent.
Low mortgage rates should continue to help keep the housing market stable in the months ahead, economists say.
A survey by the National Association of Home Builders found that builders in November were more confident about sales for the next six months. Nonetheless, builders said they were expecting housing starts and home sales to decline in the fourth quarter.
The economy contracted at a rate of 0.4 percent in the third quarter, and many economists are predicting an even bigger drop in the current fourth quarter, thus meeting one common definition of a recession: two consecutive quarters of falling economic output.
Economists are hopeful that the Federal Reserve’s 10 interest-rate cuts this year, along with Congress’ contemplation of additional tax cuts and increased government spending, will pave the way for a recovery next year.

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