Home Building Plunges 12% in November

Housing construction plunged 12.2% in November, the sharpest drop in six months, forcing analysts Tuesday to search anew for reasons why housing is not performing better given the lowest mortgage rates in six years.

The Commerce Department reported that new housing was constructed at an annual rate of 1.55 million units in November, the lowest pace since April, 1983.

Housing starts had risen 9% in October following a 7.1% September decline. The November setback was the largest drop since a 13% fall last May.

Some analysts blamed extreme cold and blizzards for the sharp decline.

“Most of last month’s drop in home construction occurred in the Northeast and Midwest, where much of the unusually bad weather was concentrated,” said Jack Carlson, chief economist for the National Assn. of Realtors.

Carlson predicted that housing starts this year would total 1.76 million units, a slight improvement over 1984, with housing construction climbing to 1.84 million units in 1986.

But Michael K. Evans, head of a Washington forecasting firm, said he was revising his estimate for future housing construction downward despite the fact that mortgage rates have been declining steadily in recent months. Fixed-rate mortgages now are averaging about 11.3%, the lowest level since 1979.

“The housing market is stagnating. We are not going to get the strength that would have been expected from lower interest rates because of tougher financial requirements lenders put into effect last spring to reduce the number of foreclosures,” Evans said. “The new requirements effectively wiped out the lower end of the market, and the housing market hasn’t been the same since.”

But Commerce Secretary Malcolm Baldrige said, “The prospect for reduced federal budget deficits improves the outlook for lower interest rates and for housing next year.”

Warren Lasko, executive vice president of the Mortgage Bankers Assn., also predicted an upturn in housing in coming months. He said the most recent mortgage declines should boost construction in January and February.

The November decline was centered in construction of single-family homes, which fell by 17.5%, putting construction of these homes at an annual rate of 928,000 units.

Construction of multifamily housing fell by a smaller 2.7% to an annual rate of 619,000 units after having declined 0.8% in October.

All regions of the country suffered declines, led by a giant drop in the Northeast, where housing construction fell 31.3% last month. This drop, the biggest since March, 1984, left construction in the region at an annual rate of 209,000 units.

Housing starts fell 16.2% in the Midwest and 1.8% in the West. The South, which accounted for half of all new construction last year, had a 9.3% decline in construction in November, putting the annual rate at 730,000 units.