Housing shores up expansion with little inflation

European Economy

A report today showed Europe’s car sales slumped to a 20- year low in May as record joblessness caused by a recession in the euro area reduced demand. Registrations dropped 5.9% to 1.08 million vehicles from 1.15 million a year earlier, the Brussels-based European Automobile Manufacturers’ Association said.

In China, property prices in major cities rose at the fastest pace in more than two years, constraining the ability of policy makers to ease credit in response to weaker economic growth.

The median estimate of 82 economists surveyed by Bloomberg called for a 950,000 rate of housing starts. Forecasts ranged from an 875,000 pace to a 1.02 million rate after an initially reported 853,000 in April.

Improving property values and cheaper borrowing costs may be encouraging some Americans to buy new homes before mortgage rates head higher. The average rate on a 30-year fixed loan jumped to a 14-month high of almost 4% last week from a four-month low of 3.35% in early May, according to Freddie Mac data.

Mortgage Rates

Mortgage rates are climbing because of heightened consumer demand for loans, Neil Dutta, an economist at Renaissance Macro Research LLC in New York, said in a note to clients yesterday.

The pickup in rates has so far failed to damp homebuilder sentiment. A measure of builder confidence climbed in June to its highest level since March 2006, a National Association of Home Builders/Wells Fargo index showed yesterday. The gauge rose to 52 from 44 in May.

“A lot of us are expecting that we need 1.6 million to 1.9 million housing starts to keep up with population growth,” Brad G. O’Connor, chief accounting officer at Red Bank, New Jersey- based builder Hovnanian Enterprises Inc., said in a June 13 presentation. “Housing creation shows that we should still have a fair amount of pent-up demand and an ongoing recovery to the housing market, that we’re just in the beginning of that recovery.”

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