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Update: Housing Starts Rise Modestly

The data offer more proof that the Fed's rate hike campaign has succeeded in cooling the economy.

Updated from 8:57 a.m. EDT

The pace of new housing construction remained muted in August, offering more evidence that the

Federal Reserve's

interest rate hike campaign begun 15 months ago has succeeded in cooling the economy.

Housing starts

, a measure of the number of new homes that began construction, came in at a seasonally adjusted annual rate of 1.531 million in August, virtually unchanged from the revised rate of 1.526 million in July, the

Commerce Department

reported Tuesday. A group of economists polled by


expected housing starts to hit 1.540 million.

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August's figure is 8% below the August 1999 number of 1.657 million. The slowdown in housing starts indicate that a series of interest rate hikes orchestrated by the Federal Reserve are having an impact in slowing the rate of borrowing for new homes.

Single family housing starts in August 2000 rose about 5% from July to 1.261 million from 1.205 million. For the first eight months of 2000, housing starts are about 3% below the figure for the comparable period last year. Multiple-family starts plummeted in August 15.9% compared with July, and are down 27.4% from a year ago.

In August, housing starts rose in the South and Northeast and fell in the West and Midwest, but are flat to down in all regions of the country over the past year.

Housing permits, a forecaster of future homebuilding activity, were down about 3% in August at 1.468 million compared with a revised 1.511 million in June.

The average rate on a 30-year fixed mortgage eased in recent months, after having reached 8.52% in May, nearly one percentage point above the year-ago period and a five-year high, according to

Freddie Mac

, the government mortgage lender. In the most recent figures released by Freddie Mac, for the week ending Sept. 15, rates averaged 7.88%.

Despite this, some economists expect housing starts to remain weak in the coming months.

"Although mortgage rates have edged lower in recent weeks, housing affordability has weakened as job and income growth have slowed," said Karen Dexter, an economist at

Merrill Lynch

. "We expect further moderation in housing activity in the months ahead."