Jan. Housing Starts Rise Unexpectedly

U.S. housing starts climbed unexpectedly in January, rising 0.2 percent to their highest rate since mid-1986, the government said Wednesday, as low mortgage rates helped fuel demand for new homes.

Total permits to start housing construction, an indicator of builders' confidence in future business, fell 5.6 percent last month due to a drop in authorizations for multi-family homes, the Commerce Department said. But single-family permits -- the largest category of housing starts -- rose to a new high.

Housing starts edged up to a seasonally adjusted annual rate of 1.850 million units last month from a revised 1.847 million rate in December. Overall starts were at their highest since May 1986, while single-family starts reached their highest rate since November 1978.

Overall starts outpaced expectations of analysts polled by Reuters, who had forecast a 1.771 million rate for the month.

"The basic message is that builders continue on a roll. There's nothing like cheap money to stimulate housing," said Robert Dederick, economic consultant with Northern Trust Co. in Chicago.

The U.S. Treasury bond market and trading in the dollar showed little initial reaction to the report.

"I don't think it has much of an impact on the market," said Rick Egelton, deputy chief economist of BMO Financial Group in Toronto, speaking before trading opened on the New York stock exchange.

"If it started to weaken, then I think the market would have had a negative reaction, because it would have showed a pillar of strength was starting to weaken."

Housing has remained one of the few bright spots in the sluggish U.S. economy as mortgage rates have fallen to levels not seen since the early 1960s and remained there, due to a weak economic recovery and fears about a possible U.S.-led war against Iraq.

Many economists see healthy demand and rising incomes underpinning the housing boom, and reject predictions of a housing bubble on the national level. Federal Reserve Chairman Alan Greenspan said last week in congressional testimony that housing construction is in balance with demand.

"We're effectively not building up a glut of excess housing," he said.

Regionally in January, there was a 9.9 percent rise in starts in the West and 3.8 percent rise in the South. The Midwest saw an 11.9 percent drop while the Northeast experienced a 16.7 percent decline.

Overall permits fell to a seasonally adjusted annual rate of 1.781 million units, but in the single-family category they edged up to record a 1.415 million rate.