- The Washington Times - Wednesday, February 19, 2003

WASHINGTON, Feb. 19 (UPI) — The Commerce Department said Wednesday that U.S. housing starts rose 0.2 percent in January to a seasonally adjusted annual rate of 1.85 million units.

Most economists on Wall Street were expecting housing starts to decline 3.3 percent to an annual rate of 1.765 million units from December's originally reported 1.835 million unit pace, which the government revised upward to a 1.847 million pace.

The government said January's pace was the fastest since housing starts hovered at 1.854 million units back in May 1986.

The government agency also reported building permit authorization, an indicator of future construction, fell 5.6 percent to a seasonally adjusted annual rate of 1.781 million units from 1.887 million units.

Most economists on Wall Street were expected permits to slip to a 1.80 million unit rate.

Analysts noted that housing activity is been fuelled by favorable mortgage rates. Builders say lower borrowing costs are providing a cushion against the slowdown in the economy.

Housing accounts for more than half of all U.S. construction and boosts the economy by stimulating spending on building materials, home appliances, and home furnishings.

Housing starts measure the number of residential units on which construction is begun each month.

Investors watch the report for the ripple effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments.

By tracking economic data such as housing starts, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Home builders do not start a house unless they are fairly confident it will sell upon or before its completion.

Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy.

Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic "ripple effect" can be substantial especially when you think of it in terms of a hundred thousand new households around the country doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities.

In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.

The latest report from the Commerce Department showed that single-family home construction, which accounts for more than two-thirds of all residential construction, rose 2.1 percent in January to a 1.51 million-unit rate, the fastest since November 1978.

Starts of multifamily homes, such as apartments and condominiums, fell 7.6 percent during the first month of 2003 to a 340,000 annual rate, following a 3.1 percent rise posted during the previous month.

The report showed by region, starts climbed 9.9 percent in the West and 3.8 percent in the South.

Home construction sank 11.9 percent in the Midwest and plunged 16.7 percent in the Northeast.

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