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Housing starts decline
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December 17, 1999: 9:55 a.m. ET
November construction activity slips 2.3% to 1.6M rate; building permits rise
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NEW YORK (CNNfn) - New housing construction declined in November to the slowest pace in seven months as higher interest rates and a subsequent increase in mortgage rates deterred residential construction, the government reported Friday.
The Commerce Department said housing starts declined 2.3 percent to a 1.6 million annual rate last month, countering a revised 1.64-million rate the month before. Analysts had expected housing starts to rise to a 1.65-million rate.
The decline in new construction activity reflects rising mortgage rates, which gradually have taken the steam out of the red-hot housing market, analysts said. New housing construction hit a 12-year peak of 1.82 million homes a year in January.
"The housing market has responded to the rise in mortgage rates this year and will not contribute anything to economic growth in 2000, but this alone will not be enough to calm market fears of further Fed action,” said Ian Shepherdson, chief U.S. economist with High Frequency Economics.
Armed at the Fed
Today’s report is the last piece of economic data Federal Reserve policymakers will have to pore over before their policy meeting next Tuesday, the final session of 1999. The central bank is expected to hold rates steady, but analysts see a chance of more interest-rate rises early next year to keep potential inflation pressures in check.
Still, the decline in activity suggested to both stock and bond investors that the Fed may think twice about raising interest rates a fourth time in the new year, particularly since housing activity is one of the most interest-rate sensitive areas of the economy.
Is new construction activity starting to slow? Click above for the Commerce Department’s full report.
Indeed, rising mortgage rates - a reflection of higher yields in the government bond market - have dampened enthusiasm for new home construction. This week, the average rate on a 30-year mortgage rose to 7.86 percent from 7.84 percent, according to a weekly survey by Freddie Mac, the second-biggest U.S. mortgage buyer.
The average rate on a one-year adjustable mortgage rose to 6.49 percent from 6.45 percent the previous week, and the 15-year mortgage average rate rose to 7.47 percent from 7.45 percent.
Mortgage applications decline
What’s more, applications for new mortgages are on the decline. Mortgage applications fell to the lowest level in a month last week, according to the Mortgage Bankers Association of America. The association's mortgage applications index declined 4.4 percent to 302.4 in the week ended Dec. 3 from 316.4 in the previous week.
November’s building rate was the slowest since April, when new homes were being built at a rate of 1.58 million a year. Analysts thought unseasonably mild weather last month might stimulate building activity, but that was not reflected in the numbers.
"This should be evidence to the Federal Reserve that its tightening earlier this year is starting to have an effect,” said Jim Glassman, chief U.S. economist with Chase Manhattan. The Fed raised short-term interest rates three times this year in an effort to slow the economy and avoid inflation.
Regionally, building starts fell 9.9 percent in the South to a rate of 680,000 a year in November, the slowest pace in a year since starts in the nation's largest regional market were running at a 663,000 rate in January 1998.
Starts jump out West
In the Midwest, November starts fell 6.8 percent to 356,000 a year last month. But in the West, starts on new homes jumped 14.9 percent to an annual rate of 417,000 in November, and in the Northeast they were up 7.3 percent to 147,000 a year.
Separately, Commerce said building permits, a measure of builders' future intentions, rose 1.3 percent to a 1.63 million rate, above both the 1.6 million rate expected by economists and the 1.58-million rate registered in October. 
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Commerce Department
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