- THE MAGAZINE
WASHINGTON, D.C. -- Homebuilders began construction on new houses at a stronger-than-expected pace in November, the government said on Tuesday, a sign of the housing market's resiliency in the face of a recession.
The U.S. Commerce Department said housing starts surged 8.2 percent to a 1.645 million annual rate in November, the fastest monthly pace since July, and well above analysts' expectations.
Building permits, a signal of future activity, were also up in November, rising 5.3 percent to a 1.564 million annual rate from October's 1.485 million a year pace. The average forecast had called for a 1.550 million annual rate of starts.
Analysts had expected low mortgage rates and good weather to keep building activity relatively robust, though not at the pace reflected in November's numbers.
Indicating that low interest rates and solid house-price appreciation motivated new home buyers across the country, the National Association of Home Builders' Housing Market Index (HMI) rose 8 points to 57 in December.
According to Bruce Smith, NAHB president, "This is the largest monthly increase in the HMI since 1998, and marks a return to the index's general range of strength prior to Sept. 11."
The Walnut Creek, Calif. builder said builders remain concerned in some markets, particularly the Midwest where job losses have been most concentrated. "However, the very favorable interest-rate environment and strong investment potential of homeownership are proving to be powerful incentives for buyers whose jobs have not been impacted by recent economic weakness," said Smith.
The HMI is derived from a monthly survey of builders that NAHB (www.nahb.com) has been conducting for nearly 20 years. Homebuilders are asked to rate current sales of single-family homes and sales expectations for the next six months as "good," "fair" or "poor." They are also asked to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for responses to each component are used to calculate a seasonally adjusted overall index, where any number over 50 indicates that more builders view sales conditions as good than poor.
Each of the HMI's three component indexes rose 8 points in December. The index gauging current sales of single-family homes rose to 60 from the previous month's 52 reading, while the index for expected sales in the next six months rose to 64 from a previous 56 and the index for traffic of prospective buyers rose to 46 from a previous 38.
While he acknowledged that home sales and production are still expected to decline somewhat in this year's final quarter and the beginning of next year, Smith said solid market fundamentals spurred December's HMI gain, leading him to believe the economic slowdown will be relatively short.
"The market will likely flatten out in early 2002 and then rebound to positive growth territory in the second quarter," he said.