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Rise in US housing starts not sign of rebound for sector

Unexpected 3% rise due to surge in apartments; applications for building permits continue to fall

WASHINGTON – CONSTRUCTION of new homes and apartments in the United States rebounded last month by the largest amount in eight months, but the unexpected increase was not viewed as a signal of a housing turnaround.

The Commerce Department reported yesterday that housing construction rose by 3 per cent last month, the first increase after three months of declines and the biggest advance since a 6 per cent rise last February.

However, all of the strength came in the volatile apartment sector, which jumped by 44.4 per cent.

Construction of single-family homes fell for a seventh straight month, declining by 7.3 per cent last month compared with September.

Analysts believe that housing is likely to remain weak through much of next year as builders struggle with historically high levels of unsold homes and rising mortgage defaults which are dumping even more homes back on glutted markets.

The overall increase left construction last month at a seasonally adjusted annual rate of 1.229 million units, down 16.4 per cent from activity a year ago.

Applications for building permits, seen as a good sign of future activity, fell for the fifth straight month in October, dropping by 6.6 per cent to an annual rate of 1.178 million units. That is down a sharp 24.5 per cent from a year ago.

The rebound in overall construction came as a surprise to analysts who had forecast a drop of 1.3 per cent.

However, the 6.6 per cent slide in permit applications was more severe than the 4.8 per cent fall expected by Wall Street.

Troubles in housing are expected to seriously depress overall economic growth in the current quarter and early next year with some analysts growing more concerned about an outright recession.

Yesterday, Freddie Mac, the second-biggest buyer of US mortgages, posted its largest-ever quarterly loss – US $2 billion (S$2.9 billion) – and said it may cut its dividends to weather ‘significant deterioration’ in the housing market.

The US Federal Reserve has cut interest rates twice since September but has signalled that it is not likely to make further reductions unless the economic weakness deepens significantly, because of worries that a surge in oil prices will make inflation worse.

In Europe, shares in UBS tumbled, but then clawed back, on concerns that the Swiss-based bank will suffer more losses due to exposure on assets hit by the US sub-prime mortgage crisis.

In Britain, buy-to-let mortgage lender Paragon Group said it may need to raise £280 million (S$831 million) from shareholders because of difficulty faced in raising funds in the credit crunch, prompting its shares to plunge nearly 40 per cent.

 

Source: ASSOCIATED PRESS, BLOOMBERG NEWS, REUTERS (The Straits Times 21 Nov 07)

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