US buoyed by housing starts as Fed meets to discuss next move

By Stephen Foley
Wednesday 18 March 2009 01:00

American builders broke ground on an unexpectedly high number of new homes last month, providing a rare glimmer of hope for the US housing market, where the financial crisis began – and where, most likely, it will first begin to ease.

The new data was published as the Federal Reserve assembled its open market committee to discuss interest rates and other measures that the central bank is using to tackle the 15-month-old recession. Economists are not anticipating any change to official rates, which are already effectively at zero, and are instead looking to the Fed to signal if it could pump new money into credit markets to help bring down mortgage rates.

House prices continue to fall at record levels, but yesterday's data on housing starts suggests that some builders are more optimistic for the future. The number of new projects jumped 22.2 per cent in February, the Commerce department said. It was the biggest rise since January 1990, and the first gain since last April. New building permits, which give a sense of builders' home construction plans, rose 3 per cent last month. This, too, was the first rise since April.

Most of the rise in starts came from new apartment building projects, while the construction of single-family homes rose just 1 per cent. If these figures continue, they could suggest builders are expecting a trend towards cheaper homes.

Forecasters had predicted another decline in starts in February, and economists were split over whether the strong uptick represented anything more than a one-month aberration. "The figures are volatile in the winter months," said Kevin Logan, senior US economist at Dresdner Kleinwort."February is a short month, and one week of really nice weather can get housing starts started, so this looks like a bounce rather than a bottom."

Bill Cheney, chief economist at John Hancock Financial Services in Boston, said: "Even if we get housing starts just sort of bouncing along the bottom for a while, at least that means they won't be subtracting from GDP growth."

The Fed has been holding interest rates in a zero-0.25 per cent range since December and additionally pursuing policies of "quantitative easing" similar to those adopted by the Bank of England in the UK.

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