Housing Starts Decline 1.8% in November : Building Pace Lowest in More Than 2 Years

Housing construction, depressed by a building slump in the South, fell 1.8% in November to the lowest level in more than two years, the government said Tuesday.

The Commerce Department said new homes and apartments were built at a seasonally adjusted annual rate of 1.6 million units last month, the slowest pace since October, 1984.

The November decline was the third in a row and the eighth time this year that housing construction has dipped below the level of the previous month.

Analysts blamed the latest setback on depressed conditions in the Southwest Oil Patch and adverse effects on multifamily construction coming from the new tax law and high vacancy rates.

Even with the declines, construction for the first 11 months of the year is running 4.4% ahead of the pace set during the same period in 1985.

Analysts predicted that further declines in mortgage interest rates would help boost demand for single-family homes in the months ahead but forecast that apartment construction would continue to decline.

“We have a housing market that is firm but not strong,” said Warren Lasko, executive vice president of the Mortgage Bankers Assn. “It reflects the mixed performance of our economy. The news is good in the Northeast and the West, but markets are clearly weak in the South.”

Concentrated in South

The November decline was concentrated in the South, a region suffering from a slump in energy production and farming. Construction starts fell 12.5% in Southern states to an annual rate of 593,000 units, the slowest pace since September, 1982.

James Christian, an economist for the U.S. League of Savings Institutions, said there probably will be further declines in building starts in the South because of a large inventory of unsold homes and high apartment vacancy rates in some cities.

Construction activity rose in other parts of the country, led by a 10.4% gain in the Northeast to an annual level of 276,000 units. Construction was up 6.1% in the West to 490,000 units and 0.4% in the Midwest to an annual rate of 239,000 units.

Construction starts for single-family homes totaled 1.09 million units at an annual rate in November, a 0.3% increase over October.

However, construction of multifamily housing dropped 6.1% to 505,000 units following a 4.3% October decline.

Multifamily housing construction has plunged almost 37% from its February peak, and analysts predicted further weakness as builders scrap plans on the drawing boards because the new tax law makes them no longer profitable.

But some of the weakness in this area will be offset by gains in construction of single-family homes that will be spurred by further declines in mortgage rates, economists predicted.

Fixed-rate mortgages have dropped to 9.35%, the lowest level since April, 1978, according to a weekly survey by the Federal Home Loan Mortgage Corp.

John Tucillo, chief economist of the National Council of Savings Institutions, said mortgage rates have already fallen below 9% in about a dozen cities around the country and he forecast the nationwide average rate would decline to as low as 8.5% during the next three to six months.

Building permits, considered a good sign of future activity, rose 1.7% in November to an annual rate of 1.59 million units. It was the first increase in permits since June.