New housing down substantially as mortgage rates rise

Home construction plunged 5.6 percent in October, providing dramatic evidence that rising mortgage rates are beginning to dampen the housing boom.

In other economic news, output at the nation’s factories, mines and utilities rose at the fastest pace in 17 months in October, posting a solid rebound from the devastating Gulf Coast hurricanes.

The Federal Reserve reported industrial output was up a healthy 0.9 percent last month as refineries and oil and natural gas platforms recovered from the damage caused by hurricanes Katrina and Rita.

Last month’s increase followed a 1.5 percent plunge in September, which had been the biggest one-month drop in industrial production in more than two decades.

The Fed’s report on industrial production showed that manufacturing output was up 1.4 percent last month, the biggest increase in six years, reflecting not only increased activity after the hurricane shutdowns but also the end of a strike at aircraft manufacturing giant Boeing.

The strong increase in manufacturing output offset a 1.9 percent drop in output at the nation’s utilities and a 0.5 percent drop in mining output.

The drop in home construction came as mortgage rates were climbing in October. Mortgage rates continued to climb this month.

Freddie Mac reported Thursday that the national average for 30-year mortgages rose to 6.37 percent this week, up slightly from 6.36 percent last week. It was the 10th consecutive weekly increase and put the 30-year mortgage at its highest level in more than two years.

Analysts believe that rates will climb even higher in coming months as the Federal Reserve keeps tightening credit in an effort to make sure that this year’s surge in energy prices does not spell broader inflation problems.

The October decline in housing, the biggest since a 17.7 percent drop last March, showed slower construction of single-family and apartment dwellings.

Single-family homes were being built at an annual rate of 1.68 million units last month, down 4.9 percent from the September level. Construction of multifamily units fell by an even larger 13.7 percent to an annual rate of 390,000 units.

In a sign of potential weakness in the future, the number of building permits issued in October dropped by 6.7 percent to an annual rate of 2.07 million units.

The weakness in construction was widespread across the country, led by a 10.8 percent drop in the West.

Construction was down 10.5 percent in the Midwest to an annual rate of 333,000 units and down 7.5 percent in the Northeast. Home construction fell 0.5 percent in the South.

Government analysts said the hurricanes that hit Gulf Coast states did not have a significant impact on building in the region last month.

Private-sector analysts believe that rebuilding from the storms will boost construction but that this positive effect will not be felt for several more months.

Another economic report showed the number of Americans who have lost jobs because of hurricanes Katrina, Rita and Wilma rose by 19,000 last week to a total of 561,400. That increase was down slightly from the 21,000 hurricane-related claims that had been filed in the previous week.

Storm-related claims peaked at 108,000 in the third week in September and have been declining since then.

Total jobless claims throughout the country fell by 25,000 last week to 303,000, the lowest level since mid-April and a sign that the labor market is shaking off the impact of the hurricanes.