US housing starts jumped 3.4 percent in September and permits for future groundbreaking surged to a 32-year high, defying forecasts for a slowdown in construction following hurricanes Katrina and Rita, government data showed on Wednesday.
A separate report showed US mortgage applications climbed last week for the first time in a month, even as interest rates on the 30-year home loan hit their highest levels of 2005.
The Commerce Department said housing starts increased to a 2.108 million unit annual rate in September, as construction on both single-family and multifamily units rose. That outpaced August's upwardly revised 2.038 million unit rate, which was originally reported at 2.009 million units.
Economists had expected starts to slow to a 1.970 million unit annual pace, saying activity likely fell after the storms disrupted construction in the Gulf Coast region.
The Commerce Department said the hurricanes had a minimal impact on housing starts in September. After imputing data for August, it assumed no permits were issued for the approximately 24 jurisdictions that did not report September data for the department's sample survey.
"It continues to defy all the expectations of doom in the housing market," said Mark Vitner, senior economist at Wachovia Securities in Charlotte, North Carolina. "Demand for housing still remains quite strong and this year will be a record year for single-family construction."
US Treasuries prices held early gains after the stronger-than-expected report.
Total single-family housing starts rose 2.6 percent to a 1.747 million unit rate while multifamily starts soared 7.8 percent to a 361,000 unit pace in September.
Permits for future groundbreaking, an indicator of builder confidence, jumped 2.4 percent to a 2.189 million unit pace - the highest rate since a matching pace in February 1973.
Housing starts rose 6.9 percent in the US South and 1.9 percent in the Midwest and held unchanged in the Northeast and West.
MORTGAGE APPLICATIONS: Low mortgage rates have supported the housing sector for more than four years. Some economists have predicted a cooling in 2006 as long-term interest rates rise and dampen demand.
But earlier Wednesday, the Mortgage Bankers Association said its index of mortgage loan application volume for the week ended October 14 increased 6.1 percent to 737.5 despite an increase in borrowing costs on 30-year fixed-rate mortgages to 6.09 percent.
The 30-year fixed rate, the industry benchmark, has climbed on and off since late June's level of 5.47 percent, its lowest in 2005. It also is substantially higher than the year-ago level of 5.64 percent.