Housing Starts Jump in Face of Rate Hikes

Starts of home construction unexpectedly increased in January, and permits for new projects climbed to the highest level in a year, suggesting builders will have their hands full in the months ahead even as interest rates rise.

Housing starts rose 1.5% last month to a seasonally adjusted annual rate of 1.775 million units after jumping 5.1% in December, the Commerce Department said Wednesday.

“Consumer confidence has remained strong and buyers are feeling pretty good,” said Fred Cooper, vice president of finance at Toll Brothers Inc., a home builder based in Huntingdon Valley, Pa. “I don’t think the interest rates at current levels” are chasing potential homeowners away.

Buyers also have many financing choices that let them initially sidestep the full effect of fixed-rate mortgages that rose to a 3 1/2-year high last week. Adjustable mortgages now account for more than a quarter of all new and refinanced mortgages, according to the Mortgage Bankers Assn. of America. That’s triple the 8% share in 1998.

January’s increase was paced by a 17.7% surge in starts of apartment buildings and other multifamily projects. Construction of single-family houses fell 2.1%. The West led the nation with a 7.3% increase, while starts fell in the Northeast, where a winter storm halted construction.

Separately, the Labor Department said prices for imported goods rose 0.1% last month but, excluding petroleum, actually fell 0.1%.

The two reports show “more strong growth and low inflation,” said Rosanne Cahn, chief equity economist for Credit Suisse First Boston Inc. in New York.

The housing report showed permits for all new housing construction rose 8.7% in January to an annual rate of 1.763 million units--the highest since January 1999. Permits for single-family homes rose to the highest level since February 1999.

Builders are still trying to catch up with last year’s record sales. Toll’s backlog for the three months ended Jan. 31 was up 31% from the same quarter a year ago, Cooper said. It takes the company five to 11 months to finish a home once it’s ordered. “We’re pretty comfortable fiscal 2000 is going to be a record year,” he said.

Analysts expected starts to fall to a 1.644-million-unit pace in January, partly reflecting higher mortgage rates. Construction of new housing often begins several months after a home is ordered and reflects mortgage rates during that time as well.

Since reaching a 12-year high pace of 1.82 million units in January 1999, starts had been tapering off as mortgage rates gradually climbed.

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Housing Starts

Seasonally adjusted annual rate, millions of units:

January: 1.8 million

Source: Commerce Department