April Home Building Best in 12 Months : Industrial Operating Rate Falls; Fourth Drop in Five Months

Housing construction in April climbed to its highest level in a year, the government said Thursday, as economists expressed optimism that declining interest rates will spark renewed momentum throughout the economy.

The Commerce Department said new housing was constructed at a seasonally adjusted annual rate of 1.91 million units last month, as a continued surge in apartment building offset a slight decline in single-family construction.

The 1.6% increase in April followed a much larger 14.3% gain in March. Both increases helped to push construction activity to its highest level since April, 1984.

Since the spring of last year, housing activity had dropped by about 20% as rising mortgage rates dampened home buyers’ enthusiasm. But mortgage rates have dropped considerably from their peaks last July of 15.2% for fixed-rate loans.

With one major bank on Wednesday cutting its prime lending rate to 10%, the lowest level in 6 1/2 years, many analysts expect mortgage and other interest rates to head lower still.

Operating Rate Falls

Many private analysts are counting on further interest-rate declines to help spur growth in other segments of the economy, particularly the depressed industrial sector.

Meanwhile, the Federal Reserve Board said the operating rate at the nation’s factories, mines and utilities fell 0.5 percentage point in April to 80.6%.

It marked the fourth month out of the past five that the operating capacity has declined, reflecting the general slowdown in the U.S. economy. Overall growth dipped to an annual rate of 1.3% for the first three months of the year, the lowest level since the end of the last recession.

David Berson, an economist for Wharton Econometrics, said the growth in housing construction, compared to the slump in industrial activity, showed the opposing influences in the economy.

“We have a real split right now between production and the demand side,” he said. “Things like housing on the demand side are doing well, but the production segment is doing very poorly because of the high value of the dollar.”

James Christian, chief economist for the U.S. League of Savings Institutions, said that further declines in mortgage rates will spur construction and sales in coming months, with the increased activity in the building industry likely to filter through to the rest of the economy.

“This increase in housing should give the overall economy a lift just at a time when it really needs it,” he said.

Warren Lasko, executive vice president of the Mortgage Bankers Assn., said fixed-rate mortgages have dropped to about 12.75% and could go as low as 12.25% in coming months.

“Interest rates are clearly on the decline, reflecting the weakness in the economy and the good news on the federal budget in Congress,” he said.

The housing report said construction of single-family homes edged down 1% in April to an annual rate of 1.16 million units, following a 3.2% increase in March.

However, construction of apartments with five or more units rose 6.4% in April following a giant 45.7% surge in March.

Construction of apartments with four or fewer units rose a more modest 2.8% in April following a 10.4% gain in March.

While current construction rose in April, issuance of new building permits, usually a good sign of future building activity, declined 4.9% following a 7.2% increase in March.

Construction was the strongest in the Western states, where building activity rose by 8.2%, followed by a 6.2% increase in the Northeast and a 2.6% rise in the South.

Construction in the Midwest declined by 16% in April, but it had been up a sharp 58.9% in March.