WASHINGTON – Housing starts unexpectedly rose 4.7 percent last month to a nearly 21-year high as single-family housing starts shot up to a record, a Commerce Department (search) report showed on Wednesday.
Housing starts (search) increased to a seasonally adjusted annual rate of 2.159 million units in January from an upwardly revised 2.063 million unit pace a month earlier, the government said. The January total marked the highest pace of housing starts since February 1984 when they hit a 2.260 million unit pace.
Wall Street economists had expected housing starts to decrease 4.3 percent to a 1.917 million unit rate from the 2.004 million unit rate initially reported for December.
Low mortgage rates have been supporting the housing sector despite short-term interest rate increases by the Federal Reserve (search). Rates on 30-year mortgages averaged 5.57 percent in the week ended Feb. 10, and 5.8 percent for all of 2004, according to mortgage funder Freddie Mac (FRE).
In fact, interest rates on 30-year fixed-rate mortgages have not risen above 6 percent in at least six months, helping to keep the housing market hot, said Freddie Mac's chief economist. Freddie expects long-term mortgage rates to average about 6 percent for the full year while the National Association of Realtors (search) has pegged long-term rates at 6.7 percent by the end of 2005.
Single-family housing starts rose 2.7 percent to a record 1.760 million unit pace from December's 1.713 million unit rate.
Permits for future groundbreaking, an indicator of builder confidence, rose 1.7 percent to a 2.105 million unit pace in January from an upwardly revised 2.069 million unit pace the previous month. Analysts had expected permits to decrease to a 1.995 million unit pace.
The Commerce Department said housing starts increased 18.8 percent in the U.S. South and 1.9 percent in the West. Housing starts decreased 23.9 percent in the Northeast and 12.5 percent in the Midwest.
While interest rates are widely expected to rise over the course of 2005, the housing industry expects home prices and housing starts to continue to post strong results, but slightly below the levels recorded in 2004.