Home-Building Activity Is Highest in 17 Years

MICHAEL SCHROEDER / Wall Street Journal 19aug03

WASHINGTON—Home-building activity rose to a 17-year high in July, showing that the housing sector continues to be a driving force in U.S. economic growth despite recent increases in mortgage rates.

Housing starts rose for the month by a higher-than-expected 1.5% to a seasonally adjusted annualized pace of 1.872 million, the Commerce Department said. That compares with a revised increase of 5.7% in June to a 1.845 million rate.

"We expect that housing activity will remain strong in the next several months but then cool late in the year in lagged response" to increasing mortgage rates, said Mickey Levy, chief economist at Bank of America Corp.

Separately, the University of Michigan's preliminary August consumer-sentiment index slipped to 90.2 from 90.9 in July. Economists had expected the gauge to come in at 91.2. The index is closely monitored because consumer spending represents roughly two-thirds of U.S. economic activity.

The strong housing report was driven primarily by a surge in single-family home starts, which experienced their second-best month ever. "In response to the recent rise in rates, many potential homebuyers, previously fence-sitting, have apparently rushed to purchase," Mr. Levy said.

Housing activity, which includes residential construction and purchases of appliances and household goods, contributes directly to economic growth.

Housing starts jumped 19% in the Northeast and fell 13.9% in the West. Starts of single-family homes rose 1.9% to their highest level since late 1978, while starts of multifamily homes, or apartment buildings, fell 0.6%.

The July report showed that building permits, an indicator of future construction activity, dropped by 2.4% to a 1.8 million annual rate.

In the last month, mortgage applications for home purchases have remained at record levels while applications to refinance have declined sharply from recent levels.

Meanwhile, the Bank of Tokyo-Mitsubishi-UBS retail chain-store sales index declined 0.5% in the week ended Saturday on a seasonally adjusted, comparable-store basis. The report showed that the recent power blackout in the East and upper Midwest had a minimal effect on store sales. In fact, the Northeast had the strongest sales, in part because of a boost in several blackout-related product areas such as generators, batteries, bicycles and water.