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Feb. Housing Starts Near 3-Year High

Economy: Mild weather and low mortgage rates boost pace of new construction by 12.2%.

March 19, 1997|From Times Wire Services

WASHINGTON — Builders took advantage of mild weather, relatively low mortgage rates and strong consumer confidence in February and pushed construction of new homes to the highest level in nearly three years, the government reported Tuesday.

The 12.2% jump in housing starts, combined with other recent signs of a robust economy, fanned fears that the Federal Reserve Board will raise short-term interest rates next week to slow the pace of growth and prevent a surge in inflation.

Stocks and bonds were mostly negative after Tuesday's report. Higher interest rates would erode the value of fixed-income securities. And stock investors fear rising rates because they drive up corporate costs and put pressure on profits.

Housing foundations were laid at a seasonally adjusted 1.53-million annual rate in February, up from a 1.36-million rate a month earlier, the Commerce Department said.

It was the most since a 1.56-million rate in March 1994 and much higher than the 1.45 million that many analysts had expected. The jump was the steepest since a 13.1% increase in July 1995.

Starts were higher in every region except the Northeast, where they tumbled 26.9%, the biggest loss in more than six years.

In the West, starts rose 5% to an annualized rate of 354,000.

There were suggestions that housing activity will continue at a healthy rate, although analysts said probably not at the February level.

For monetary policy, though, the building report and other signs of economic growth increase the likelihood that Fed policymakers will raise the overnight bank lending rate at their meeting Tuesday, said Kevin Flanagan, an economist at Dean Witter Reynolds in New York.

"It's another piece of ammunition for them" to push through a rate increase, he said.

What's more, retail sales are running higher than a year ago, according to a weekly LJR Redbook Research survey of department and chain stores that was released Tuesday. Week-over-week retail sales were weaker, however, as cool weather hurt clothing sales.

U.S. Treasury bonds were little changed Tuesday as investors credited much of the construction report's strength to the weather. That may have accelerated starts originally planned for March, April or May, analysts said. Investors were also betting that today's Labor Department report on February consumer prices will show scant evidence of inflation.

But the stock market had a nervous reaction, with the Dow Jones industrial average losing 59 points to close at 6,896.56. The Commerce Department said applications for building permits--often a barometer of future activity--rose 3% in February to an annual rate of 1.44 million.

And the National Assn. of Home Builders said an increase in its housing market index in March indicated its members planned to continue new construction.

"All the market conditions are ripe for home buying and that's what this index indicates," said Kent Colton, association executive vice president. "We've had a mild winter, a strong economy and relatively favorable interest rates."

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