US housebuilding picks up speed

Mortgage problems may have a large impact on the housing market

The US housing market had had a boost after government figures showed that construction of new homes rose faster than analysts had expected in February.

New housing starts were up 9% from January, the Commerce Department said.

There are concerns about the state of the housing market as inflation has threatened to keep interest rates high.

At the same time, record numbers of people defaulting on mortgages have fanned fears that lending requirements would be tightened up, denting demand.

'Sub-prime shakeout'

Recent problems in the sub-prime market, which caters for people with poor credit histories, have added to analysts' concerns about the outlook for the US market.

"Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line," said economist David Seiders.

"Some are already seeing effects of the sub-prime shakeout on current sales activity."

The increase in February housing starts took the number of units built to a seasonally adjusted figure of 1.525 million.

February's increase came after construction dropped by 14.3% in January.

Analysts said that while the latest figures helped boost optimism there also was a drop in the number of building permits approved, indicating that construction may slow in coming months.

The worry is that should the housing market slow significantly and property values fall, then consumers could rein in their spending putting a break on the main driver of growth in the world's largest economy.

The Federal Reserve, the US equivalent of a central bank, is due to start a two-day rate setting meeting on Wednesday.