Weak housing sector helps keep lid on consumer prices

NEW YORK -- The U S housing market continued to stumble in June, cooling the economy and contributing to the smallest increase in consumer prices in five months.

Building permits dropped to an annual pace of 1.406 million last month, the lowest in a decade, even as builders started work on more homes, the Commerce Department said yesterday in Washington. Americans paid 0.2 percent more for goods and services, following a 0.7 percent increase in prices in May, the Labor Department said.

"Housing is still weak and is still going to be a drag on the economy," said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. "From the Fed's point of view inflation is behaving well, but not well enough for them to let their guard down."

Housing starts rose 2.3 percent to an annual rate of 1.467 million, led by an increase in apartments, while construction of single-family homes fell, the Commerce report showed. The government also revised May starts down to a 1.434 million pace.

The rise in starts was led by a 9 percent increase in the West. Construction also rose in the South, by 2.4 percent. It fell by 3.7 percent in the Midwest and declined 2.4 percent in the Northeast.

Rising mortgage rates and stricter lending rules are impeding a rebound in housing, even as builders lower prices and add incentives. A glut of unsold properties will probably continue to drag down construction and the economy for the rest of the year, economists said.

The Labor Department's report showed core prices, which exclude food and energy, rose 0.2 percent and were up 2.2 percent from a year earlier, matching May as the smallest year-over-year increase since March 2006.