Bloomberg News

WASHINGTON - New home construction rose in August for the first time in four months as lower mortgage rates renewed interest from buyers.

The Commerce Department reported Tuesday that housing starts rose 0.3% last month, to an annual rate of 1.531 million units, after falling 2.9% in July.

The increase followed declines in five of the previous six months. Mortgage rates climbed to a nine-year high in May.

Rates on 30-year fixed mortgages, which have fallen in the last four months, have averaged 7.93% so far this month, the lowest this year.

The Mortgage Bankers Association index of new loan applications rose 6.7%, to 343.2, in the week that ended Sept. 8 - the highest level since 357.6 in the week that ended July 2, 1999, when the Federal Reserve started a series of six interest rate hikes.

"It looks as if the worst is behind us" for the housing industry, said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. "The drag from housing is over, but don't look for a major push to growth."

The lower mortgage rates have builders more optimistic about business in the months ahead. On Monday the National Association of Home Builders reported its housing market index for this month is 61, unchanged from last month but up from 57 in June, when mortgage rates were still rising.

The trade group's index of expected sales over the next six months rose to its highest level since February.

"Stability is returning to the housing market now that mortgage interest rates have fallen in each of the last several months," said Robert Mitchell, the trade group's president and a homebuilder in Rockville, Md.

Residential construction is on course to total 1.617 million units this year, which would match the number of houses built in 1998. That was the second-best year - after 1999 - for builders in the nine-year-old economic expansion.

Housing starts soared to a 1.822 million annual rate in February, the fastest since December 1986.

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