Housing Construction Declines 0.8% in June

Housing construction edged down 0.8% in June, the government reported Thursday, with analysts blaming an uptick in mortgage rates for the small setback.

But economists predicted that lower rates in coming months will maintain housing as one of the few bright spots in the economy.

The Commerce Department said new homes and apartments were constructed at an annual rate of 1.85 million units last month after a decline of 7.9% in housing construction in May.

Even with the setbacks in May and June, housing for the first six months of this year was running 9% ahead of the pace in 1985, and analysts predicted that the housing industry was headed for its best year since 1978.

Effect of Falling Rates

Economists blamed the back-to-back declines on a rise in mortgage rates. Fixed-rate mortgages fell into the single-digit range for the first time this decade during April, but rates began rising in May and early June.

“Because builders don’t want to be caught with unsold housing inventories, some decided to delay construction in June to see what interest rates would do,” said Glenn Crellin, vice president of the National Assn. of Realtors.

Rates have been dropping in recent weeks, and this will likely spur sales and construction in the months ahead, he predicted.

A survey by the Federal Home Mortgage Corp. found that fixed-rate mortgages had dropped to 10.59% last week, and many analysts forecast that they would fall to perhaps as low as 9.5% in the months ahead.

“A combination of demand plus lower interest rates will keep housing strong for the rest of the year,” said Ron Poe, president of the Mortgage Bankers Assn.

James Christian, chief economist for the U.S. League of Savings Institutions, predicted that housing starts would total about 1.85 million units this year, 6.3% ahead of last year and the fourth consecutive year in which starts would be above 1.7 million units.

“This would give us stable production at relatively high levels in what has been historically a boom-and-bust industry,” he said.

The 0.8% June decline in housing starts came from a 1.9% fall in construction of single-family homes, which dropped to an annual rate of 1.22 million units.

Construction of multifamily units rose 1.6% to an annual rate of 623,000 units, but the small increase did not make up for a sharp 21.1% plunge of the month before.

Analysts predicted that apartment construction would remain sluggish for the rest of the year because of widespread overbuilding, high vacancy rates and investor jitters over proposed tax law changes.