- The Washington Times - Friday, October 17, 2003

New home construction last month nearly equaled the high it hit in July, defying predictions that increased mortgage rates would kill the housing boom and unexpectedly adding to the economy’s burst of growth this past summer.

The 3.4 percent surge in construction starts to a 1.888 million annual rate fell just shy of the 17-year high of 1.89 million reached in July, the Census Bureau reported. Applications for permits to build new single-family homes and apartments slipped by 2.2 percent, but remained above the 1.8 million level for a fifth straight month — the first time that has happened since 1973.

Economists say the unexpectedly strong performance of housing over the summer, despite a sharp increase in mortgage rates, will help propel the economy’s growth rate for the summer quarter as high as 6 percent to 7 percent, because it comes on top of a boom in consumer spending spawned by tax cuts and mortgage refinancings.

“The housing economy continues to surprise everyone but the builders,” said Joel Rassman, chief financial officer of Toll Brothers Inc., a luxury home builder that estimates the demand for new homes will stay in the 1.8 million to 2 million range for years to come. Unabated buyer enthusiasm for new homes lifted optimism among homebuilders this month to a four-year high.

“There’s a huge pent-up demand that has yet to be satisfied,” Mr. Rassman said.

Housing’s resilience owes in part to a tick back in the average 30-year mortgage rate to a little above 6 percent last week from around 6.5 percent earlier in the summer.

But another, less-advertised source of strength has been a flood of immigrants who, as a result of growing incomes and easier access to credit, have been steadily buying homes as they strive to realize their part of the American dream.

A recent census survey showing unexpectedly high immigration levels so far this decade adds support to housing industry projections that the demand for new homes will remain at today’s elevated levels. Housing analysts project population growth will be driven by immigration this decade to about 30 million, up 4 million from previous estimates, prompting an increase in the number of households of between 13 million and 15 million.

“We expect demographic forces to continue to drive housing demand for the rest of the decade,” said David Berson, chief economist at Fannie Mae, the federal mortgage-financing giant.

The strong immigration flows have been feeding growth in minority homeownership, continuing a trend that began in the 1990s, when strong economic growth and low unemployment boosted homeownership to record levels above 67 percent nationwide.

While minorities are less likely to own homes than white households, Mr. Berson noted that minority immigrants who become naturalized U.S. citizens are more likely to own homes than native-born minorities. About 63 percent of foreign-born Hispanics and 70 percent of Asians who are naturalized citizens owned their homes in 2002, he said, compared with 54 percent and 57 percent of their counterparts born in the United States.

Harvard University’s Joint Center for Housing Studies is forecasting that purchases of homes by minorities will account for two-thirds of the growth in housing this decade, up from about one-third in 2001. About a quarter of the growth will be due to immigrants purchasing homes, it predicts.

Innovations by the finance industry, particularly low- and no-down-payment mortgages, combined with help from the federal government, has made owning a home increasingly possible for immigrants, minorities, young families and other first-time home buyers. Legislation pending in Congress would provide $200 million to help about 40,000 low-income home buyers with down payments and closing costs on their loans.

Republicans are proving no less generous to the housing industry than Democrats who, during the decades they controlled Congress, enacted massive subsidies and tax breaks that made housing the second most federally subsidized business after health care.

Housing and Urban Development Secretary Mel Martinez trumpeted the administration’s commitment to helping minorities achieve the American dream of homeownership as he exulted over yesterday’s housing figures.

“The growth reflected in these numbers is another sign that housing continues to lead the way in our rebounding economy,” he said.

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