Housing Starts Surge 14.9% During January, Best Gain in 20 Months
Housing construction in January posted its biggest increase in 20 months, a 14.9% jump seen by the Reagan Administration and private economists as a signal of future economic growth.
The Commerce Department said in Tuesday’s report that housing starts were at a seasonally adjusted annual rate of 1.83 million units in January, up from the December rate of 1.60 million units.
It was the biggest monthly increase since a 17.7% advance in May, 1983.
White House spokesman Larry Speakes called the figures a “remarkable January surge” that showed that “housing and the economy are off to good starts” in 1985.
In other positive economic news, the Federal Reserve Board said the nation’s industries operated at 81.9% of capacity in January, a 0.2 percentage point increase from the December level. The gain, which still left the operating rate below its mid-1983 peak of 82.7%, came from big increases in production at auto plants, mines and utilities, which offset sluggishness in several manufacturing industries.
Jump in Apartments
The housing increase was due to a giant surge in construction of apartments with five or more units, which shot up 76.1% in January to an annual rate of 692,000 units. It was the highest annual figure since a rate of 750,000 units in September, 1973.
Construction of single-family homes declined 4% last month to an annual rate of 1.04 million units. Construction of apartments with two to four units was also down, dropping 15.3%.
Michael Sumichrast, chief economist for the National Assn. of Home Builders, said that, even with the decline, the single-family rate was still an “excellent number” that would support strong construction activity through the spring.
He said a survey of builder sentiment showed expectations for sales in the next six months are at the highest level in eight years.
Strongest in West
Construction activity was strongest in the West, where new starts jumped by 53.2% last month, followed by a 22.9% increase in the Midwest, a 2.6% rise in the Northeast and a tiny 0.6% gain in the South.
January building statistics for California are not yet available, and so it isn’t known if the downturn experienced in December will continue, said Michael Salkin, an economist with Bank of America. December starts in California fell 13.9% to a seasonally adjusted annual rate of 156,500 units, which included a 22% decline in single-family construction from the November level.
Contributing to the decline in December were wet weather, buyers postponing purchases in anticipation of lower interest rates and uncertainty over the Administration’s tax simplification plan, Salkin said. The tax plan, which hasn’t been introduced in Congress, would take away some real estate tax benefits.
“We’re hoping that the drop of December . . . is not going to continue in the first quarter and that housing is going to bounce back to the 175,000 to 180,000 (annual rate) levels,” he said.
The January surge in apartment construction at the national level may have reflected efforts by builders to catch up with plans delayed in December because of concern about the Treasury Department’s proposed overhaul of the tax code, said Jack Carlson, chief economist of the National Assn. of Realtors.
Fears May Have Eased
Carlson said those fears could have subsided in January as builders began to realize that the tax proposal was a long way from being approved by Congress. Other analysts said the surge may have been an effort to get projects started before current benefits are taken away.
Most analysts credited a six-month decline in mortgage interest rates with helping to spur the construction boom.
Fixed-rate mortgages were down to 13.67% in early January from a peak of 15.23% in July, according to a survey by the Federal Home Loan Bank Board.
The decline in rates is likely to spur further home sales and thus more production in coming months, analysts said. Carlson predicted that housing construction would total 1.85 million units this year.
