26 11 2013

Home Permits and Prices Rise, Despite Mortgage Rates

WASHINGTON — Permits for future home construction rose to their highest point in nearly five and a half years in October and prices for single-family homes posted big gains in September, suggesting that the run-up in mortgage interest rates since May has not derailed the housing recovery.

The data, released on Tuesday, provided the latest signs of strength in the economy, despite headwinds from rising mortgage rates and last month’s partial government shutdown.

“The reports reinforce the notion that the housing sector is successfully digesting the summer mortgage rate pop,” said Michael R. Englund, chief economist at Action Economics.

Building permits jumped 6.2 percent last month to an annual rate of 1.03 million units, the highest since June 2008, the Commerce Department said. It was only the second time since mid-2008 that permits breached the one-million-unit mark.

Last month’s increase exceeded economists’ expectations for a 930,000-unit rate. Permits, which lead housing starts by at least a month, rose 5.2 percent in September and were up 13.9 percent from a year earlier in October.

A separate report showed that the Standard & Poor’s Case-Shiller composite index of home prices in 20 metropolitan areas jumped 13.3 percent in September from a year earlier, the best gain since February 2006.

House prices have largely been driven by a supply squeeze as a glut of foreclosed properties clears. But the combination of rising prices and higher mortgage rates means some potential buyers are being priced out of the market.

“While demand for housing remains as strong as ever, credit is tight, flood insurance rates are on the rise, mortgage rates are elevated and income growth has not kept pace with price growth,” said Stephanie Karol, a United States economist at IHS Global Insight.

Mortgage rates have risen sharply since early May as the credit markets anticipated that the Federal Reserve would start scaling back on its monthly $85 billion purchases of Treasury and mortgage-backed securities this year, with the 30-year fixed-rate mortgage climbing nearly a full percentage point.

The 30-year rate hit 4.49 percent in September, the highest since July 2011, according to the mortgage finance giant Freddie Mac. But rates have been retreating, averaging 4.19 percent last month, as expectations grew that the Fed might wait until early next year to taper its stimulus campaign.

Some economists, however, said the strong housing data, combined with better-than-expected October employment and retail sales reports, increased the possibility that the Fed could begin tapering its bond purchases as early as December.

“The jump in building permits means that another obstacle to tapering is now removed,” said Harm Bandholz, chief United States economist at UniCredit Research.

A third report on Tuesday presented a slightly more pessimistic view of the economy. The Conference Board said its index of consumer confidence fell to 70.4 this month from 72.4 in October.

Lynn Franco, the Conference Board’s director of economic indicators, said consumers appeared uncertain, believing the job market had strengthened but the economy had slowed. She added in a statement, “Looking ahead six months, consumers expressed greater concern about future job and earning prospects.”