/www.bloomberg.com/ By Siobhan Hughes
Washington, (Bloomberg) -- U.S. housing starts unexpectedly rose to a 16-year high in January as the lowest mortgage rates since the 1960s kept new homes selling at a record pace in December.
Builders broke ground on new homes at an annual rate of 1.850 million units last month, the Commerce Department said. That was up 0.2 percent from December and exceeded the median forecast of 1.775 million in a Bloomberg News survey of 61 economists. Starts rose in the West and South.
Single-family homebuilding was the strongest since 1978 and suggests the economy will keep growing. Housing accounts for more than half of all U.S. construction and stimulates spending on building materials, appliances and home furnishings.
``This gets the economy in 2003 fast out of the blocks,'' said Kenneth Mayland, president of Clear View Economics LLC in Pepper Pike, Ohio. It also means ``a stream of consumer appliance and household furnishing spending.''
The average rate on a 30-year mortgage was 5.86 percent last week. That was close to the 5.85 percent at the start of January, which was the lowest since the 1960s, according to Freddie Mac, the second-largest buyer of mortgages, behind Fannie Mae. It was a record eighth straight week below 6 percent.
Economists had forecast that housing starts would fall after December's 1.847 million rate. The January pace was the fastest since 1.854 million in May 1986.
Housing ``has been the one sector that has consistently performed at a high level,'' said Ed McKelvey, senior U.S. economist at Goldman Sachs & Co. in New York. ``It's the one steady spot that's pretty consistently surprised us.''
Winter Weather
A decline in January building permits and snowstorms along the East Coast suggest that construction is slowing this month. A separate report from the National Association of Home Builders fell to the lowest since August. The group's gauge of homebuilder sentiment dropped to 62 from January's 64. The measures of future sales and prospective buyers' traffic declined.
A snowstorm crippled the Northeast last weekend, dumping about 2 feet of snow in the region. Colder-than-usual temperatures are forecast to sweep across the U.S. Midwest and East. Temperatures in New York City are projected to fall again to 32 degrees Fahrenheit by Monday, according to the National Weather Service. Chicago will have highs of 25 and 22 on Sunday and Monday, after mid-40s tomorrow.
Starts of single-family homes rose 2.1 percent in January to a 1.510 million-unit rate, the fastest since November 1978. One- family homes account for eight of every 10 houses built. January starts of multifamily homes, such as apartments and condominiums, fell 7.6 percent to a 340,000 annual rate, following a 3.1 percent increase in the previous month.
Building Permits
By region, starts rose 9.9 percent in the West and 3.8 percent in the South. Home construction fell 11.9 percent in the Midwest and 16.7 percent in the Northeast. Declines in those regions may have been because of colder weather, economists said.
The average temperature in the Northeast was 17.3 degrees in January, below freezing and cooler than average, the National Weather Service said.
Building permits, an indicator of future construction, fell 5.6 percent to 1.781 million units at an annual rate from 1.887 million units in January, today's report said.
Homebuilders such as D.R. Horton Inc. say demand for houses has been strong. The fourth-largest builder by stock market value said that its revenue increased 66 percent to $1.7 billion in the fourth quarter, fueled by a drop in mortgage rates. It had a record $2.9 billion worth of homes in backlog at the end of 2002, representing 12,435 houses.
Backlog of Orders
``We had a record backlog, which we believe is a foreteller of record revenues for the year,'' said Joel Rassman, chief financial officer at Toll Brothers Inc. in Huntingdon Valley, Pennsylvania, commenting on the company's quarter that ended in January. The luxury builder's backlog was a record 3,387 homes last month.
Last year, 1.706 million new homes were started. That was the most in 16 years and followed 1.603 million in 2001.
Benchmark 10-year Treasuries rose for the sixth day in seven on concern that the U.S. might attack Iraq without the support of some allies. The 3 7/8 note due in February 2003 rose 1/2 point, pushing its yield down 6 basis points to 3.89 percent.
U.S. stocks fell for the first day in three. The Dow Jones Industrial Average fell 64 points, or 0.8 percent, at 11:54 a.m. in New York, while the Standard & Poor's 500 Stock Index dropped 6.7 points, or 0.8 percent.