Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, September 22, 1993 TAG: 9309220036
SECTION: BUSINESS PAGE: B7 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
"Clearly the interest rates were the dominant factor," said economist David F. Seiders of the National Association of Home Builders. "Job growth is still slow. Household formation is still slow."
Construction of new homes and apartments jumped 7.8 percent to a seasonally adjusted annual rate of 1.32 million in August, highest since a 1.44 million rate in February 1990, the Commerce Department reported Tuesday.
It was the biggest increase since an 11.1 percent advance a year earlier. Starts were up in every region except for the Northeast, but the drop there was the first in five months.
New construction fell 1.7 percent in July after remaining flat in June. So far this year, it is 3.2 percent above the first eight months of 1992.
"One month does not a trend make, but this is the first real sign that lower interest rates and lower prices seem to have a positive impact on the housing industry," said White House spokeswoman Dee Dee Myers.
Economists expect rates to remain low in the months ahead. During August, fixed-rate, 30-year mortgages averaged 7.11 percent. They were at 6.96 percent last week, near a 25-year low and below 7 percent for a fourth straight week.
Federal Reserve policy-makers met privately Tuesday, and analysts thought they would vote to hold short-term rates steady because inflation is in check and the economy continues to grow modestly.
The Fed can raise rates to curb inflation or cut them to spur economic growth. It has held them steady for the past year.
Despite low mortgage rates, however, new-home sales fell in July for the second time in three months. On the other hand, sales of usually less-expensive, previously owned homes rose for four months through July.
Seiders said builder surveys have been upbeat about prospects for new-home sales in recent months "and now we're seeing that in actual starts."
Applications for building permits in August seemed to confirm builder optimism. They shot up 7.5 percent, to a 1.25 million rate, highest since 1.33 million in February 1990 and the second straight advance.
Seiders and other analysts predicted starts would stay near the August level the rest of the year. If so, they would total 1.24 million by year's end, up from 1.20 million in 1992 and 1.01 million in 1991.
Construction of single-family homes shot up 11 percent in August, to a 1.18 million rate, highest since 1.23 million in September 1987.
Mark Obrinsky, an economist with the Federal National Mortgage Association, said the single-family sector is "really the only sector in which we can expect strength in the near future."
"The multifamily sector is still having to deal with the fact that we have a large inventory overhang of apartment buildings and therefore high vacancy rates among renters," he said.
Still, the multifamily sector posted a 6.7 percent advance in August, to a 143,000 rate. Starts of apartments with five or more units rose 2.6 percent, which Seiders attributed to restoration in August of a federal tax credit for low-income housing.
Starts rose 6.4 percent to 584,000 in the South which, together with the Midwest, has been among the stronger areas of the housing industry.
by CNB