Home Building Climbs 2.4%--Best Since 1979

Construction of new homes reached 1.74 million units in 1984, giving builders their best year since 1979, the government reported today.

Falling interest rates are expected to spur construction activity through at least the first half of this year. After that, many analysts expect interest rates to rise again to levels that will dampen demand.

In its report, the Commerce Department said the 1984 construction performance, a 2.4% boost from 1983, was the best since 1.75 million homes were built in 1979.

It was far smaller than the 60% jump posted in 1983 over 1982, but 1983 was a year in which the housing industry was recovering from the worst slump since World War II. Construction starts had plunged to 1.06 million units in 1982, the worst level in 36 years.

Building activity was strong in the first half of 1984, but it went into a pronounced slump during the summer as rising interest rates discouraged home buyers.

Conventional fixed-rate mortgages peaked at 15.23% in July. By early December, they had fallen to 13.82%, according to a survey by the Federal Home Loan Bank Board.

Private analysts said rates have dropped even further since then, with fixed-rate mortgages currently available in many parts of the country at between 12.5% and 13.5%.

The lower interest rates are encouraging builders to increase their construction levels. The 2.1% December gain in housing starts followed a 1.2% rise in November. Analysts were also heartened by a sharp gain in the issuance of building permits since October.

Building permits rose 12.2% in November. While there was a slight decline of 0.2% in December, analysts said the seasonally adjusted annual rate of 1.58 million permits would translate into further construction gains in coming months.

The gains have come despite the fact that sales of single-family homes actually fell 11.6% in November. Analysts said many home buyers apparently are waiting for interest rates to fall further and will be lured into the market in heavy numbers this spring when rates start edging up again.