Sliding Interest Rates Push Home Building to New High

Riding the boom of falling interest rates, a record number of housing permits were authorized in January, raising hopes that housing starts this year will surpass 1985 when a record 39,000 permits were issued in San Diego County.

“Housing continues to be a real bright spot this year. We’re off to a booming start. The figure (permits issued) for January far outran last year’s, when the record was set,” said Greg Hastings, a research analyst for the Greater San Diego Chamber of Commerce.

According to figures compiled by the chamber, 3,411 permits were issued in the county in January, almost 1,000 more than during the same period in 1985, when 2,475 permits were authorized. In 1985, permits for 39,121 housing units were issued in the county, up from 33,399 in 1984, Hastings said.

But while countywide housing permits reached record numbers in January, the number of permits authorized in the City of San Diego during the first quarter of 1986 actually dropped compared to the same period in 1985.

According to Al Kaufenberg of the City Planning Department, San Diego authorized 829 single-family units and 1,355 apartments and condominiums in the first three months of the year. During the same period in 1985, the city issued permits for 1,303 single-family units and 2,601 apartments and condominiums.

While some housing observers attribute the sharp increase in residential construction throughout the county to falling interest rates, Hastings said that growing sentiment for construction moratoriums, particularly in North County, has also contributed to the building boom.

“There are calls for moratoriums popping out in some of the smaller communities, and these calls are serving as an incentive to builders. Builders are rushing to get permits authorized in these communities before moratoriums are declared. The prevailing feeling is ‘Let’s squeeze them in before the deadline,’ ” Hastings said.

As an example, Hastings pointed to Carlsbad, where 52 housing permits were issued in January, 1985. But calls by some local groups for a moratorium on new home construction in Carlsbad prompted builders to obtain 417 permits in January from city officials, Hastings said.

“The boom will continue until there’s a turnaround in the interest rates, and we’ve projected that falling interest rates will hit the bottom of the trough in the middle of the year,” Hastings said.

However, Paul Badnais, president of the San Diego Board of Realtors, said that interest rates may continue to drop into the beginning of 1987.

“The market is very competitive right now and there’s a great deal of money (to lend) out there,” Badnais said. “I think that interest rates will continue to drop for the balance of the year and possibly longer. I envision a very good year for home buyers; the best in seven years.”

Badnais said that some lenders are offering 30-year fixed loans as low as 9 5/8%. Dropping mortgage rates and the building boom in the county have been a shot in the arm to local realtors, he said.

“New home construction affects the entire spectrum of real estate . . . Usually, a person who buys a new home is moving out of a used one. This in turn opens up the market to apartment dwellers and other renters who can now afford to buy because of falling interest rates,” Badnais said.

While housing observers expect residential construction to reach a new peak this year, commercial and industrial building is also on the rise. The Chamber of Commerce said that the value of permits for non-residential construction increased by 8.2% in 1985 to $678.8 million.