- The Washington Times - Tuesday, December 20, 2005


New-home construction unexpectedly increased in November at the fastest pace in seven months in what could be a final flourish for the nation’s five-year-old housing boom.

The Commerce Department reported that construction activity rose by 5.3 percent in November from the October pace, when housing construction had fallen by 6.6 percent.

Analysts were taken by surprise by the extent of the rebound, which pushed construction of houses and apartments to a seasonally adjusted annual rate of 2.12 million units. They had been forecasting a more modest 0.3 percent rise.

However, they said the November performance does not change their view that housing is peaking and will move to lower levels next year in response to rising mortgage rates.

Rates on 30-year mortgages are at 6.30 percent, up from 5.68 percent a year ago, and they are forecast to go higher as the Federal Reserve keeps boosting interest rates to keep inflation under control.

A second report yesterday indicated that wholesale inflation moderated in November with wholesale prices declining by 0.7 percent. It was the biggest drop in 2 years and was led by big declines in gasoline and other energy prices.

Analysts, however, said they expected inflation pressures to return in coming months with homeowners facing winter heating bills that will be significantly higher than a year ago.

The big question in housing is whether a slowdown in sales, which have set records for both new and existing homes for the past five years, will be a moderate drop or a decline severe enough to send housing prices plunging.

Nariman Behravesh, chief economist at Global Insight of Lexington, Mass., said he believed the sales slowdown would be enough to hold home price increases to 2 percent to 3 percent next year, compared with recent double-digit price increases.

Those worried about a bigger drop fear that investors who purchased homes during the boom times in hopes of turning a quick profit will create a glut of homes on the market as they try to dump investments.

The 5.3 percent increase in construction activity in November was the biggest one-month advance since a 10.6 percent gain in April. It reflected a 4.8 percent increase in single-family construction and a 7.9 percent rebound in multifamily construction.

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