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Housing starts rise, but it's mixed news for the economy

Matt York / AP

Building up the economy? Workers frame the first home in a new Trend Homes community early in Gilbert, Ariz.

It was mixed news for a Federal Reserve looking to the housing market for help lifting the economy.

Housing starts rose 2.3 percent in August, boosted by single-family home construction, the Commerce Department said Wednesday. While the pace of single-family home building was the fastest in more than two years, the overall number was less than expected and permits to break ground on new construction slipped.

The Commerce Department said housing starts increased to a seasonally adjusted annual rate of 750,000 units. July's starts were revised to show a 733,000-unit pace instead of the previously reported 746,000.

Economists polled by Reuters had forecast residential construction rising to a 765,000-unit rate. Compared to August last year, residential construction was up 29.1 percent.

Housing starts are now a third of their 2.27 million-unit peak in January 2006. The housing market, the Achilles heel of the recovery from the 2007-09 recession, is healing, but slowly.

Sales have been creeping up and the house price decline has bottomed, with a tightening supply of properties on the market raising prices in some metropolitan areas. In addition, homebuilder sentiment touched a six-year high in September.

Home building is expected to add to gross domestic product growth this year for the first time since 2005.

Though residential construction accounts for about 2.5 percent of GDP, economists estimate that for every new house built, at least three new jobs are created.

The Fed moved last week to bolster the economy, announcing it would buy $40 billion in mortgage-backed securities per month until the outlook for employment improved significantly. The move is an attempt to drive down long-term interest rates and induce lending, including for mortgages. 

Last month, groundbreaking for single-family homes, the largest segment of the market, rose 5.5 percent to a 535,000-unit pace -- the highest level since April 2010. Starts for multi-family homes fell 4.9 percent.

Building permits slipped 1.0 percent to a 803,000-unit pace in August after surging the prior month to the highest in four years. July's permits were unrevised at 811,000 units.

Economists had expected permits to fall to a 796,000-unit pace. Permits to build single-family homes rose 0.2 percent last month to a 512,000-unit pace. Permits for multi-family homes fell 3.0 percent to a 291,000-unit rate. 

Reuters and The Associated Press contributed to this report.


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