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Published: Wednesday, 11/27/2013 - Updated: 1 year ago

Building permits near high of 5½ years

REUTERS

WASHINGTON — Permits for future U.S. home construction hit a near 5½ year-high in October and prices for single-family homes notched big gains in September, suggesting a run-up in mortgage interest rates has not derailed the housing recovery.

The data releases on Tuesday were 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 Mike Englund, chief economist at Action Economics in Boulder, Colo.

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 1 million-unit mark.

Last month’s increase beat 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 ago in October.

A separate report showed the S&P/Case Shiller composite index of home prices in 20 metropolitan areas jumped 13.3 percent in September from a year ago, the strongest gain since February 2006.

In a third report, the Conference Board said its index of consumer attitudes fell to 70.4 this month from 72.4 in October. Consumers’ labor market assessment was little changed. Stocks on Wall Street were little changed in thin pre-holiday trade, while prices for U.S. Treasuries rose. The dollar was weaker against a basket of currencies.

House prices have largely been driven by a supply squeeze as a glut of foreclosed properties clears.

But the combination of rising prices and mortgage rates means some potential buyers are being pushed out of the market.

This will dampen demand and is expected to gradually slow the pace of house price increases in coming months.

“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 U.S. economist at IHS Global Insight in Lexington, Mass.

A Reuters survey published on Tuesday forecast home prices rising 6.5 percent next year, roughly half the pace expected in 2013.

Interest rates have risen sharply since May as markets anticipated the Federal Reserve would start cutting back on its monthly bond purchases this year, with the 30-year fixed mortgage rate surging nearly a full percentage point.

It hit 4.49 percent in September, the highest since July 2011, according to mortgage lender Freddie Mac. But rates have been retreating as expectations of a Fed taper are pushed to early next year, averaging 4.19 percent last month.



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