Construction of new homes unexpectedly plunged in the United States last month, as builders waited to see whether lawmakers would extend a tax credit for homebuyers.
The results underscore how much the housing market has been relying on government support for its fledgling recovery.
The tax credit of up to US$8,000 for first-time owners was due to expire on Nov 30, but Congress voted to extend it earlier this month and expand it to more buyers, after intense pressure from real estate agents and homebuilders.
Meanwhile, consumer prices edged up slightly faster than expected in October, driven higher by another increase in energy prices and the biggest jump in new car prices in 28 years.
Still, prices are lower than they were a year ago and inflation is expected to remain subdued as the economy struggles to emerge from a deep recession.
A strong housing market is needed to support a broad economic recovery.
The Commerce Department said yesterday that construction of new homes and apartments fell 10.6 per cent in October to a seasonally adjusted annual rate of 529,000, from an upwardly revised 592,000 in September. Economists had expected a pace of 600,000.
Buyers who have owned their current homes for at least five years are now eligible for tax credits of up to US$6,500, while first-time homebuyers would still get up to US$8,000. To qualify, buyers have to sign a purchase agreement by April 30. Applications for building permits, a gauge of future activity, fell 4 per cent to an annual rate of 552,000 units. That also missed analysts’ expectations of 580,000.
Meanwhile, the National Association of Home Builders said on Tuesday its housing market index remained unchanged in November, reflecting a cautious outlook from residential developers as they waited to learn whether Congress would extend a homebuyer tax credit.
The trade association said its index stood at 17 for the second straight month. The Labor Department said the cost of living rose more than forecast in October as Americans paid more for fuel, while so-called core prices held at a pace that supports the Federal Reserve’s forecast for tame inflation.
The 0.3 per cent rise in the consumer-price index in October followed a 0.2 per cent increase in September. Excluding food and energy costs, the core index rose 0.2 per cent for a second month.
Unemployment at a 26-year high of 10.2 per cent and wages that were down 5.2 per cent in September from a year earlier are giving companies such as Wal-Mart Stores little room to raise prices.
Fed chairman Ben Bernanke said this week that the economic ‘headwinds’ will limit the recovery, allowing interest rates to stay low for an ‘extended period’.
‘I don’t see anything in the report that suggests there’s any real inflation flare-up,’ said Joseph LaVorgna, chief US economist at Deutsche Bank Securities Inc in New York. ‘The Fed is comfortably on hold.’
Economists had forecast the consumer price index would rise 0.2 per cent.
The core index was forecast to rise 0.1 per cent, according to the Bloomberg survey. Compared to a year earlier, consumer prices were down 0.2 per cent. Core prices rose 1.7 per cent from October 2008 after a 1.5 per cent year-over-year gain in September. Energy costs increased 1.5 per cent in October, led by fuel oil and gasoline.
The year-over-year declines in the consumer price index are getting smaller as crude oil prices increase from an almost five-year low in December 2008.
Gold futures rose to record high of US$1,151 an ounce yesterday, as stronger-than-expected US consumer prices stirred inflation worries. US December gold futures were up US$10.20 at US$1,149.60 an ounce at 1417 GMT on the Comex division of Nymex. Just minutes earlier, it scaled an all-time high US$1,151 an ounce.
Source : Business Times – 19 Nov 2009
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