Canadian Press
Tuesday, July 20, 2004

WASHINGTON (AP) - American home builders took a bit of a breather in June, sending housing construction down to its lowest level in just over a year. It was another sign that the economy slowed down last month.

The number of housing projects on which builders broke ground came to a seasonally adjusted annual rate of 1.80 million units, an 8.5 per cent drop from May's level, the Commerce Department reported Tuesday.

Although the pace was the lowest since May 2003 and was weaker than economists expected, it still represented a respectable level of activity.

Housing construction in May rose by 0.4 per cent from the previous month, according to revised figures. That turned out to be stronger than the decline previously estimated.

Tuesday's report was consistent with other economic data - including retail sales and the nation's employment situation - that suggested the economy hit a rough patch in June. Analysts, however, are confident its just a temporary lull, rather than a sign of trouble ahead for the economic recovery.

Home builders, meanwhile, feel pretty good about sales prospects for July as well as for the next six months, according to a monthly survey by the National Association of Home Builders.

"Home sales continue to run hot this summer and most builders don't see a slowdown on the horizon," said the association's president, Bobby Rayburn, a home builder from Jackson, Miss.

One of the reasons for optimism: Mortgage rates have been falling in recent weeks. Rates on benchmark 30-year mortgages last week fell to six per cent, marking the fourth straight week of decline.

Investors' growing confidence in the Federal Reserve's ability to keep inflation under control and recent economic reports showing the economy is growing solidly - but not so fast as to force the Fed to boost interest rates aggressively - has helped push down bond rates, causing mortgages rates to decline.

The Fed raised interest rates for the first time in four years on June 30 in an effort to keep inflation at bay. Policy-makers increased a key interest rate to 1.25 per cent, from a 46-year low of one per cent.

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