US housing starts rose 5.3 per cent in November, defying Wall Street expectations for a slowdown, as construction on both single-family and multifamily units climbed, the Commerce Department reported yesterday.
In a separate report, the government said producer prices posted their biggest drop in more than two and a half years, showing prices were well contained outside of the volatile food and energy areas.
The dollar firmed to session highs against the euro after the two reports, while Treasury prices trimmed losses on the tamer-than-expected core producer prices data.
November housing starts increased to a 2.123 million unit annual rate, faster than the 2.017 million unit annual rate expected by Wall Street economists, who had anticipated rising mortgage rates would cool activity. October starts were revised up to a 2.017 million unit annual pace from the originally reported 2.014 million unit rate.
Single-family housing starts rose 4.8 percent to a 1.808 million unit annual rate while starts on multifamily units jumped 7.9 per cent to a 315,000 unit pace.
Permits for future groundbreaking, an indicator of builders' confidence, rose 2.5 per cent in November to a 2.155 million unit pace. Economists had expected permits to fall to a 2.093 million unit pace from October's revised 2.103 million unit pace.
The department said permits for single-family homes increased 0.2 per cent, but jumped 15 per cent for housing with five or more units - marking the biggest percentage increase since July 2004, when it surged 18.2 per cent.
"It's a big surprise," said Christopher Low, chief economist at FTN Financial in New York. "There has been plenty of anecdotal evidence of regional weakness, but none of the national numbers have shown weakness."
Low mortgage rates have supported a five-year rally in the housing market, but borrowing costs have started to climb. Mortgage finance company Freddie Mac said the 30-year fixed-rate mortgage averaged 6.30 per cent in the latest week compared with 5.68 per cent a year ago.
Economists say higher rates should dampen homebuyer demand and cool the market, and recent months' housing data has shown some signs of a moderation in the sector.
The Commerce Department cautions that month-to-month changes in the housing starts statistics may show irregular movements and that it may take four months to establish an underlying trend for permits and six months for starts. Starts climbed throughout most of the country, except the US south, which reported a 1.3 per cent decline in groundbreaking. Starts rose 12.3 per cent in the midwest, 11.5 per cent in the west and 11 per cent in the northeast.
The 580,000 unit pace of housing starts in the West was the fastest for that region since December 1978, when it was 645,000 units, the Commerce Department said.
US producer prices fell a larger-than-expected 0.7 per cent last month, the biggest drop in two-and-a-half years, according to a Labour Department report.
The drop in the producer price index, a gauge of prices received by farms, factories and refineries, was the largest since April 2003 and reflected a four per cent drop in energy costs, which swamped a 0.5 per cent gain in food prices, the department said.
The core PPI, which strips out those volatile costs to provide a better gauge of underlying inflation pressures, edged up just 0.1 per cent.
Wall Street economists had expected overall producer prices to drop 0.5 per cent, with the core index up 0.2 per cent.
Like a report on consumer prices issued last week that showed the biggest decrease in prices since July 1949, the producer price data could help ease inflation concerns.