Housing starts unexpectedly shot up 5.9 percent in April to the highest level in two years despite rising mortgage rates. All regions except the Northeast shared in the advance.
The Commerce Department said Thursday that construction of new homes and apartments totaled 1.52 million at a seasonally adjusted annual rate, highest since a 1.53 million rate in March 1994.The increase, largest since a 7.9 percent surge last November, followed a 5.2 percent drop in March, to a revised 1.44 million rate. The March total originally was estimated to be 1.45 million.
Forecasters had expected a 1.4 percent decline in April, believing the housing industry had reached a plateau because of the recent increase in mortgage rates.
Thirty-year, fixed-rate mortgages now are over 8 percent, up from 6.94 percent as recently as Feb. 15.
Analysts say that for every 1 percentage point increase in rates, 250,000 to 300,000 families are priced out of the market.
The monthly payment on a $100,000 mortgage with a 7 percent interest rate is $665 while the payment on the same loan with an 8 percent rate is $734 - a difference of $69.
In a separate report, the Labor Department said Thursday that new claims for jobless benefits rose by 12,000 to 352,000 last week. Many analysts had expected a smaller 9,000 advance.
But the four-week moving average of applications for unemployment insurance fell to 353,000, the lowest since September. Many analysts prefer to track the four-week average because it smooths out the spikes in the weekly reports.
An early May membership survey by the National Association of Home Builders resulted in a boost in its Housing Market Index to the highest level since February 1994.
Two of the index's three categories rose - current sales and traffic of prospective buyers. But the rating for future sales fell, largely due to decreased expectations because of rising mortgage rates.
"We're still expecting activity to taper off somewhat as the impact of higher interest rates kicks in. But for now, at least, it seems that builders are optimistic about demand," said Randy Smith, the Home Builders' president.
Indeed, applications for building permits, often a barometer for future activity, jumped 3.3 percent in April to a 1.46 million annual rate, highest since 1.48 million last December. It was the third straight advance.
Interest-sensitive single-family starts, about 80 percent of residential building activity, shot up 4.2 percent to a 1.21 million rate, highest since 1.22 million in July 1994. They had slipped 1.5 percent in March.
Construction of apartments and condominiums, an often volatile category subject to interest-rate changes, surged 13 percent in April to a 305,000 rate after plunging 18.4 percent a month earlier.
Regionally, starts rose 4.8 percent in the South to a 657,000 annual rate. They were up 1.5 per-cent in the West to 397,000 and 1.2 percent in the Midwest to 328,000.
But starts fell in the Northeast, down 1.4 percent to a 137,000 annual rate.