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Analysts Unfazed as May Housing Starts Fall 13.7%

United Press International

Housing starts dropped 13.7% in May, the steepest decline in more than a year, the Census Bureau said Tuesday, but industry analysts were not alarmed by the news.

“Starts are doing very well,” economist Michael Sumichrast said, speaking for the National Assn. of Home Builders. “Overall, the decline doesn’t mean too much.”

“I’m not very concerned” about the one-month drop, said Michael Salkin, housing economist at Bank of America, adding that, if “starts drop in June and July during the peak part of the building season, then we’ll have something to worry about.”

Although the number of new starts is running 5.5% behind the same period last year, many analysts as recently as a few months ago thought that builders would be doing a lot worse by now. But housing has been boosted by lower mortgage and construction loan interest rates as well as a widespread frenzy among local governments to use up tax-exempt housing bond quotas before they can be removed by tax reform initiatives. Developers are also moving fast to lock in their tax benefits.

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State and local governments in some areas of the country are issuing up to 60% more tax-exempt bonds this year than last to finance residential construction, Sumichrast said.

“Actually, the tax proposal is helping housing now,” he said.

Housing starts in May were at an annual rate of 1.663 million after seasonal adjustment. Before adjustment for seasonal peculiarities, the decline was much less--3.9%.

The May decline was the biggest since the 23% drop in March, 1984, but the new level was still higher than in February. The seasonally adjusted average for starts so far this year--1.795 million--is running ahead of production for all of last year.

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The May decline looked more dramatic because April starts were at an exceptionally high level--1.927 million--after a 2% increase from March.

While fewer new projects were started in May, building permits rose 3%, an encouraging sign that suggests increases in starts later on.

Housing so far this year has been the brightest spot in an otherwise slow economy. Tuesday’s half-pointdrop in the prime rate promised that housing would benefit to an even greater extent as monthly payments continue to fall.

Starts of single-family houses dropped 10% while those of multifamily buildings dropped 19.1%.

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The decline was spread throughout all regions of the country, with the greatest setback in Western states--18.5%. Northeastern states reported a 17% drop, Southern states were down 15.3% and Midwestern states slipped 5.7%.

Builders are apparently encouraged by lower interest rates that made both construction loans and mortgages for buyers less expensive. Many analysts had forecast a bigger decline in housing starts by now, but May’s annual rate of production is actually higher than that for February.


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