WRAPUP 3-US housing starts at 5-month high, still depressed

* New home construction rises 0.3 percent in September

* Residential construction rises to five-month high

* New permits fall 5.6 percent on multifamily
segment
(Adds details, updates markets to close)

By Lucia Mutikani

WASHINGTON, Oct 19 (BestGrowthStock) – Groundbreaking for new U.S.
homes scaled a five-month high in September, another sign the
housing market is bottoming, though permits for future building
fell.

While Tuesday’s data was encouraging, housing starts
remained at depressed levels and added to the case for more
monetary stimulus to shore up the sluggish economic recovery.

The Federal Reserve appears almost certain to signal it
will pump more money into the economy at its Nov. 2-3 policy
meeting through fresh purchases of government securities, but
it is unclear how large the program will be.

“The weakness on the housing front and the potential for a
further drag from housing will support greater quantitative
easing,” said Michelle Meyer, a senior economist at Bank of
America Merrill Lynch in New York, referring to the Fed’s
actions to keep rates low by making money cheaper.

“The likely scenario is that the Fed announces a program
where they buy up five hundred billion (dollars) over a
six-month period.”

Housing starts advanced for a third straight month, gaining
0.3 percent to a seasonally adjusted annual rate of 610,000
units in September, the Commerce Department said. August starts
were revised up to a 608,000-unit pace from 598,000 units.

Economists had expected groundbreaking activity to slip to
a 580,000-unit rate last month. Compared to September last
year, housing starts were up 4.1 percent.

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U.S. housing starts graphic: http://link.reuters.com/fyk29p

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The data had little impact on U.S. financial markets as
investors were digesting China’s first interest rate increase
in three years and expressions by several Fed officials on the
need for more monetary policy easing.

U.S. stocks (Read more about the stock market today. ) (.SPX: ) posted their biggest loss in two months,
also hurt by earnings from technology giants Apple (AAPL.O: ) and
IBM (IBM.N: ), which disappointed investors. For Wall St stocks
report see (.N: ). Investors also worried an investigation into
improper processing of home foreclosures could result in at
least one bank being forced to buy back mortgage bonds.

Prices for U.S. government debt (US10YT=RR: ) rose, while the
dollar saw its biggest gain versus a basket of currencies
(.DXY: ) since August.

NO CONSENSUS ON POLICY EASING

Three officials at the Fed — the U.S. central bank — made
the case for further easing on Tuesday, with Atlanta Fed
President Dennis Lockhart saying purchases of $100 billion a
month could help to achieve the desired effect of stimulating
the economy.

But there is no unanimity on the need for more monetary
stimulus. One Fed official said the argument had not been made
conclusively, while another voiced skepticism over the
effectiveness of a second round of asset purchases.
[ID:nN19117919]

The economy’s recovery from the worst recession since the
Great Depression has slowed and the Fed worries that sluggish
demand given a 9.6 percent unemployment rate could end up in a
crippling downward spiral in prices.

The Fed has already taken benchmark interest rates
effectively to zero and bought some $1.7 trillion in Treasury
and mortgage-related debt.

The housing market is starting to settle down after hefty
declines following the expiration of a government tax credit
for home buyers. A survey on Monday showed sentiment among home
builders edged up this month.

However, recovery will likely be feeble amid an overhang of
unsold homes and stubbornly high unemployment, even though
mortgage rates are near record lows.

New building permits dropped 5.6 percent to a 539,000-unit
pace last month after a 2.1 percent increase in August. Permits
were dragged down by a 20.2 percent tumble in multifamily units. Permits for single-family homes rose 0.5 percent.

Economists had expected overall building permits to rise to
a 580,000-unit pace in September.

“Mounting shadow inventories, near record-low home sales
and a lack of jobs mean any pick-up will be painful and will
take time to develop,” said Yelena Shulyatyeva, an economist at
BNP Paribas in New York.

Groundbreaking last month was lifted by a 4.4 percent
increase in single-family home construction. Starts for the
volatile multifamily segment fell 9.7 percent.

Analysts are keeping a wary eye on the foreclosures
investigation, which they fear may stall the housing market’s
recovery as banks hold back on planned foreclosures. The White
House warned banks on Tuesday it would pursue them for any
mortgage practices that violated the law. [ID:nN19125216]

“As we see it, if the costs and risks of lending have
risen, even as a result of recognizing past mistakes, lenders
may back away from their incipient recovery in lending
appetite,” said Steven Wieting, an economist at Citigroup in
New York.

“Sales disruptions would tend to be more concentrated in
distressed home resale markets than new home sales and
construction.”
(Editing by James Dalgleish)

WRAPUP 3-US housing starts at 5-month high, still depressed