Rising mortgage rates cooling off five-year boom

Housing construction and new building permits were down sharply in October, providing fresh evidence that rising mortgage rates are beginning to cool the five-year housing boom.

The Commerce Department reported yesterday that construction of new homes and apartments fell by 5.6 percent last month, the biggest decline in seven months.

Applications for new building permits, a good sign of future activity, fell by 6.7 percent, the biggest decline in six years.

Analysts said these weaker-than-expected figures, combined with evidence homes are staying on the market longer, indicate the hot real estate market is cooling off.

''We are likely to see a steady downward trend in housing activity over the next few months all tied to rising mortgage rates," said Nariman Behravesh, chief economist at Global Insight, a Lexington, forecasting firm.

The fear is that home values have soared to such high levels that a slowing in demand could cause those prices to drop sharply, raising risks to recent purchasers who could end up with mortgage burdens that are higher than the falling values of their homes.

Behravesh doesn't see that happening, saying higher mortgage rates ''should serve to cool the market down without precipitating any kind of nasty scenario."

The National Association of Realtors reported Tuesday that 69 cities around the country saw double-digit price gains during the July-September quarter, compared with the same period a year ago, led by a 55.2 percent surge in the Phoenix area and a 44.8 percent jump in Fort Myers, Fla.

Nationally, median prices for existing homes were up 14.7 percent in the third quarter compared with a year ago.

By region, construction starts were down 10.8 percent in the West, 10.5 percent in the Midwest, 7.5 percent in the Northeast, and 0.5 percent in the South.