New Housing Starts Rise 15.7% in Month

Construction of new homes surged 15.7% in January, the biggest jump in almost two years, the government reported Wednesday.

The Commerce Department said new homes and apartments were started at a seasonally adjusted annual rate of 2.09 million units in January, compared to December’s rate of 1.8 million units.

The sharp increase, following a strong 9% gain in December, was the healthiest since a 17% jump in housing starts in February, 1984.

Deputy White House Press Secretary Larry Speakes hailed the figures as indicating “tremendous strength” in housing markets.

“This is solid evidence that the future of the nation’s housing industry--indeed, the entire economy--is solid,” he said.

Several industry economists, heartened by the encouraging news, predicted that the wave of good fortune could continue at least through the spring. But Commerce Secretary Malcolm Baldrige warned against expecting a housing boom to develop this year.

“Some indicators for home building are less favorable,” Baldrige said in a statement.

He said that deposits to thrift institutions “remain sluggish, loan qualifying standards have been tightened and vacancy rates for rental housing in some regions are high. Thus, while boom conditions are not likely, we can look forward to a year of further gains from 1985’s total (of housing starts).”

Speakes applauded the new housing figures, along with Tuesday’s stock market high, last week’s producer price index showing inflation dropped at the wholesale level and recent unemployment figures.

“In the wake of all this good news,” he said, “most private economists are now doing what we felt was inevitable: They are revising their economic growth forecasts upward. Anyone still doubting our projections for solid, sustained 4.0% growth for 1986 (is) ignoring all the facts.”

The big January improvement came from a sharp 24.5% jump in construction of single-family homes, which were built at an annual rate of 1.35 million units last month.

The Commerce Department report said that fixed-rate, 25- to 30-year mortgages now are averaging around 10.75%, the lowest rate in almost seven years. Construction of multifamily units rose a smaller 2.5% to an annual rate of 735,000 units.

Michael Evans, head of a Washington economic forecasting firm, said, “We have a strong housing sector, but it is not this strong.”

James Christian, chief economist for the U.S. League of Savings Institutions, said housing is off to a very good start this year.

“The slippage, and there wasn’t much, in multifamily construction just was overwhelmed by the big gains in single-family construction,” he said.

“Sales are excellent,” said Michael Sumichrast, chief economist for the National Assn. of Home Builders. “Demand for housing is quite strong, and builders report good traffic at developments.”

Dick Peach, a vice president of the National Assn. of Realtors, said: “It’s clear that mortgage rates are either going to stay where they are or go down a little bit further.”

The Commerce Department also revised its estimate for total construction for 1985, putting construction activity at 1.73 million units, down a small 0.7% from 1984. The 1985 decline had originally been put at 1%.

For January, all areas of the country showed strength. The biggest rise was posted in the Northeast, a 28% gain over the December level. Construction activity rose 22.1% in the Midwest and 17.2% in the South. Construction rose 1.8% in the West.

In a separate report, Bank of America said California housing starts increased 14.8% in December and ended the year with a 20.8% increase over 1984 as 241,771 houses and apartments were built.

Starts were the highest since 1977.