Builders started work on fewer homes in the United States last month that could be the reason why Federal Reserve policy makers decided to continue with the current level of its stimulus that is aimed at bolstering economic expansion. Housing starts increased 0.9 percent to 891,000 annual rate.
It came after last month’s 883,000 rate. The rate in August was weaker than the estimates. Economists called for 917,000. Permits also dropped more than the estimate.
Builders said that the industry slowdown was caused by the highest mortgage rates in more than two years. They said that it is only temporary. The yield on Treasury notes dropped after the Fed announced it would not pull back on its monthly bond buying. The Fed said it needed more indicators of lasting improvement in the economy.
Housing starts have lost their momentum but economists said it is a temporary thing. Higher rates would be a challenge to the housing recovery but it would not derail.
After the Fed made its announcement, stocks went up and sent the Standard & Poor’s 500 Index to a record closing high. The S&P 500 went up 1.2 percent to 1,725.52. The yield on benchmark 10 year note declined to 2.70 percent from 2.85 percent yesterday.
Economists estimated home starts ranging from 880,000 to 980,000. The previous month was changed down from the initially reported 896,000 rate. Activity in June was weaker than the previous estimate.
Building permits fell 3.8 percent to 918,000 pace that indicated a lack of drive leading to the present month. Applications were estimated to drop to 950,000 pace from 954,000. The drop in Treasury yields could lead to a decline in borrowing costs. The rate on 30 year home loans has an average of 4.57 percent in the week that ended September 12. This was near the highest level since July 2011.