New home construction hits seven-month high

updated 12:37 p.m. ET Oct. 19, 2005

WASHINGTON - Housing construction unexpectedly rose in September to the highest level in seven months, defying expectations of a slowdown in the booming housing market.

The Commerce Department reported Wednesday that construction of new homes and apartments rose by 3.4 percent last month to a seasonally adjusted annual rate of 2.11 million units, the fastest pace since last February.

Analysts had been forecasting that housing construction would decline by 1.7 percent in September, believing that increases in mortgage rates would finally start to cool the red-hot housing market.

Even with the September increase, the expectation remains that housing will slow in coming months because of the jump in mortgage rates.

Freddie Mac reported that 30-year fixed-rate mortgages hit 6.03 percent last week, the first time they have been above 6 percent since last March. Economists predict that those rates will continue to rise as the Federal Reserve keeps pushing interest rates higher to combat inflation pressures spawned by this year’s surge in energy prices.

The 3.4 percent increase in construction reflected strength in both single-family and apartment activity. Single-family home construction rose by 2.6 percent to 1.75 million units while multifamily construction rose by an even stronger 7.8 percent to an annual rate of 361,000 units.

The report showed that the rise in building activity was led by a 6.9 percent increase in housing activity in the South, where the pace of building rose to a seasonally adjusted annual rate of 198,000 units. The government said that this increase was not affected by the devastation from Hurricanes Katrina and Rita.

Housing construction was up 1.9 percent in the Midwest to an annual rate of 368,000 units. Two regions showed no gains in September. The Northeast remained at an annual rate of 198,000 units, the same as August, while the West remained at an annual building rate of 561,000 units.

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