New-home prices are at stratospheric levels. The median price of $220,300 in August was close to February’s record $237,300 and 32% higher than five years ago. Over the past year, though, the price of a new home increased little.

“Homebuilders now need to reduce the pace of starts relative to sales in order to reduce the inventory overhang and underpin prices,” the chief U.S. economist at High Frequency Economics, Ian Shepherdson, wrote in a research report yesterday.

Housing starts in America unexpectedly increased last month, to 2.108 million units at an annual rate, and building permits, a sign of future construction, rose at the fastest pace since February 1973, the Commerce Department reported yesterday.

Mr. Shepherdson suggests that homebuilders base housing starts on a combination of inventory available for sale and price.

“Homebuilders appear to have been infected by the curse of irrational exuberance, at least for a while,” he said.

Mr. Shepherdson is also watching the home purchase applications index, which has slipped in recent weeks. “This might just be noise, but it could also mark the start of a real softening in the face of 6%-plus mortgage rates,” he says.

The chief economist at Nomura Securities in New York, David Resler, sees strength in yesterday’s housing starts report.

“Although not a record, the 2.108 million level of housing starts defies thoughts that housing was plateauing, but also that housing is indeed in a bubble phase,” Mr. Resler said. Buoyant starts in the South suggested “no ill effects of Hurricane Katrina.”