Singlefamily housing starts rise 2.7 in September
Building permits for singlefamily housing up 0.3
Housing still expected to have been a drag on Q3 GDP

WASHINGTON, Oct 18 Reuters U.S. singlefamily homebuilding surged to a fivemonth high in September, but permits for future construction rose only marginally amid excess supply of new homes on the market and prospective buyers holding out for lower mortgage rates.

Despite the second straight monthly increase in singlefamily housing starts, economists expected that residential investment, which includes homebuilding and sales, was a small drag or had a neutral impact on thirdquarter economic growth.

Home building suffered a setback following a surge in mortgage rates in the spring. Mortgage rates initially dropped after the Federal Reserve began cutting interest rates last month, but they have risen over the past three weeks as solid economic data, including retail sales and annual revisions to national accounts, forced traders to abandon expectations for another 50 basispoint rate cut next month.

Residential construction activity is not helping the economy grow at its potential rate, said Carl Weinberg, chief economist at High Frequency Economics.

39;Falling39; interest rates are different than 39;low39; interest rates until they have been falling for a while. For builders and buyers, the promise of more rate cuts to come will encourage delaying new construction projects and purchases.

Singlefamily housing starts,…