updated 9/17/2003 2:30:24 AM ET 2003-09-17T06:30:24

Housing construction declined by 3.8 percent in August as higher mortgage rates made builders a bit cautious about breaking ground on new projects. However, the level of building activity was still considered fairly robust.

Major Market Indices

THE COMMERCE DEPARTMENT reported Wednesday that builders broke ground on 1.82 million housing units at a seasonally adjusted annual rate last month. The level of housing construction in August was lower than the 1.84 million unit pace that analysts were predicting.

However, housing construction in July clocked in at a red-hot rate of 1.89 million units, according to revised figures. That was even stronger than previously reported and marked the highest level of housing construction seen in 17 years.

Amid signs that the economy is improving, the Federal Reserve on Tuesday decided to keep a main short-term interest rate at a 45-year low of 1 percent and hinted it could stay there for some time. Near rock-bottom short-term rates might motivate consumers and businesses to spend and invest more, lifting economic growth.

The housing market also is staying healthy despite a recent upswing in longer-term mortgage rates. In the middle of June, rates on benchmark 30-year mortgages slid to 5.21 percent, the lowest level in more than four decades. But shortly after that, they began a fairly steady rise. Last week, however, rates on 30-year mortgages dropped to 6.16 percent.

Factors contributing to the recent rise in mortgage rates include: signs that the economy is picking up speed and concern about swelling federal budget deficits, economists say. Those factors have pushed bond rates up, causing long-term mortgage rates to rise.

Economists expect sales of both new homes and previously owned homes to hit record highs this year, even if higher mortgage rates slow activity somewhat in the coming months.

In August, work on new single-family homes declined by 4 percent from the previous month to a rate of 1.48 million units. Construction of multifamily housing, including apartments and condos, also fell by 4 percent last month to a rate of 308,000.

Higher mortgage rates nipped home builders sales prospects a bit for September, but they still expressed optimism about sales over the next six months.

“Builders had one of the hottest summers ever this year in terms of housing demand, largely because of the incredibly favorable interest rates just before mid-year,” said National Association of Home Builders President Kent Conine, a home and apartment builder from Dallas.

After longer-term interest rates went up, “it was to be expected we’d adjust our expectations accordingly. Even so, there is a strong current of optimism throughout our entire industry that today’s very healthy activity is sustainable through at least the end of this year.”

By region, housing construction plunged by 23.3 percent in the Northeast to a rate of 145,000. In the South, housing construction dropped by 2.7 percent to a pace of 851,000 and in the West, housing starts dipped by 1.8 percent to a rate of 436,000. But in the Midwest, housing construction increased 1 percent to a rate of 388,000.

In an encouraging note, housing permits — a good barometer of current demand — rose by 4.5 percent in August from the previous month to a rate of 1.89 million units, the highest level since December 2002. And, permits for single-family homes rose by 2.9 percent to a record high monthly rate of 1.48 million units.

© 2003 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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