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FILE - In this Tuesday, July 9, 2013, file photo, a zero net energy home under construction is seen from the interior of another at The Preserve at Mountain Vista in New Paltz, N.Y. The Commerce Department reports the pace at which builders broke ground on homes in July on Friday, Aug. 16, 2013. (AP Photo/Mike Groll, File)
Builders broke ground on more homes in July
First Published Aug 16 2013 09:26 am • Last Updated Aug 16 2013 12:53 pm

WASHINGTON • U.S. developers broke ground on homes at a faster pace in July. But the rise was all due to apartment construction, which is typically volatile. By contrast, builders began work on fewer single-family homes — the bulk of the market — and sought fewer permits to build them.

Friday’s report from the Commerce Department suggests that home building is maintaining its recovery but might be starting to be restrained by higher mortgage rates.

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Builders began work on houses and apartments at a seasonally adjusted annual rate of 896,000 in July, the department said. That was up 6 percent from June, though below a recent peak of more than 1 million in March. Construction began on 26 percent more apartments but declined 2.2 percent for single-family houses.

The dip in single-family starts comes after other measures of the housing market have flattened or declined. It may signal that higher loan rates have begun to weigh on housing, which has otherwise steadily recovered since earlier last year.

Mortgage applications by potential homebuyers have fallen 15 percent since the end of April. Signed contracts to buy homes slipped in June after reaching a six-year high in May.

The average rate on the 30-year loan was 4.4 percent this week — a full percentage point higher than in early May. Mortgage rates spiked in June after Chairman Ben Bernanke indicated that the Federal Reserve could slow its bond purchases later this year. The bond purchases have kept long-term interest rates low, encouraging more borrowing and spending.

"There’s no doubt that rising rates have had an effect," said Dan Greenhaus, chief global strategist at BTIG, an institutional brokerage.

Some smaller homebuilders have said it’s become more difficult for them to get loans to build. They also say that limited supplies of finished lots and a lack of skilled workers have become barriers to faster construction.

Last month, D.R. Horton Inc., the nation’s largest homebuilder, said its sales pace declined in May, when rates began to move up.

Still, Greenhaus suggested that the effect on housing so far has been far less than what economists might have expected after a 1-point rise in the average 30-year fixed mortgage rate.


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Others note that demand for new homes remains strong even as supply is tight. That trend has pushed up prices and should encourage more construction.

"Should we be concerned? Not yet," said Patrick Newport, a housing economist at IHS Global Insight. "There is just a big gap between supply and demand right now, and I think higher mortgage rates won’t cancel that out."

Over the past 12 months, the home construction data still look strong: Builders broke ground on 15 percent more single-family homes in July than a year earlier. And including apartments, housing starts have surged 21 percent in the past year.

Applications for permits for future home construction also rose in July, though solely because of apartments. Permits rose 2.7 percent to 943,000, thanks to a 13.5 percent jump in apartment permits. Permits for single-family homes dipped 2 percent but are still near the five-year high reached in June.

Overall housing starts remain below the 1.5 million-a-year rate that’s consistent with a healthy market.

Builders are more optimistic than at any time in nearly eight years, and Americans are buying new homes at the fastest pace in five years. Both trends should spur more construction.

A measure of homebuilder confidence rose for a fourth consecutive month in August to nearly an eight-year high. The National Association of Home Builders/Wells Fargo builder sentiment index, released Thursday, rose to 59 from 56 in July. That is the highest level since November 2005. A reading above 50 indicates that more builders view sales conditions as good rather than poor.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.

Despite the lift from housing, the economy has been sluggish this year. It expanded at just a 1.7 percent annual rate in the April-June quarter after a 1.1 percent annual rate in the first three months of the year.



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