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Housing starts dip

Last week, the U.S. Commerce Department reported that October housing starts dipped by a more-than-expected 5.6% to 2.014 million units - the lowest level since March. Single-family home starts declined 3.7%, after increasing 3% in September while multi-family starts fell by 14.8%. The Northeast, Midwest and the West experienced the most significant declines, at 7.5%, 10.5% and 10.8%, respectively. By contrast, starts in the South only dipped by 0.5%, due primarily to post-hurricane reconstructions.

Building permits - an indicator of homebuilder confidence - also saw a noticeable decline, dropping by 6.7% in October from a 32-year high the previous month. October building permits pulled back to a 2.07 million rate versus the 2.219 million September number.

Analysts said that the considerable declines in new housing construction show that U.S. housing demand has peaked, and is now being driven down by higher interest rates. However, regional rebuilding will keep starts and permits in the South robust for the next few months, although there should be a lower average 2006 annual rate of starts versus 2005, something that has not occurred since 2000.

"While the sector may be decelerating from the frenzied pace of the last two years, the level of activity remains extremely solid by historical standards," said RBS Greenwich Capital analyst Michelle Girard. She added that to put October numbers in the proper perspective, it should be noted that before late 2003, two million housing starts in a month had not been witnessed in 20 years.

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