New Housing Construction Up 0.9% in July

Associated Press

Housing construction, jolted earlier this year by a sharp jump in mortgage rates, edged up 0.9% in July, the first monthly increase since February, the government reported Tuesday.

The Commerce Department said new housing was being built at a seasonally adjusted annual rate of 1.61 million units last month as strength in single-family construction offset a further decline in apartment building.

The July increase, though modest, followed four straight monthly declines which were blamed on a sharp rise in mortgage rates in April and May.

"It looks like builders and buyers are over the spring rate shock," said David Berson, senior economist at the U.S. League of Savings Institutions.

Berson predicted improvements in sales will spur further gains in construction in August and September. He said the sales gains will come even though mortgage rates will start rising again as well, climbing by perhaps one-half percentage point by the end of the year.

Modest Gains Seen

"It will be a fairly modest increase in rates over a three- or four-month period. It won't act to scare people off like the sharp rise in May did," he said.

Fixed-rate mortgages dipped to a nine-year low of 9% at the end of March before investor fears about renewed inflation and a falling dollar sent rates up sharply. Mortgages hit a high of 10.8% in late May before starting to fall again, dipping to 10.33% last week, according to a survey by the Federal Home Loan Mortgage Corp.

Building permits, considered a good sign of future activity, edged down 1.9% in July to an annual rate of 1.49 million units, the slowest annual pace since March, 1983.

However, analysts were not too concerned by the small drop in permits, saying this level of activity would still support construction at 1.6 million to 1.7 million units for the whole year.

"The decline in housing induced by the rise in mortgage rates has pretty much run its course," said Martin Regalia, chief economist for the National Council of Savings Institutions.

Regalia predicted that 1.66 million units would be built for all of 1987, down 8% from a 1986 total of 1.81 million units, but still considered a good year for the housing industry.

For the first seven months of the year, construction has fallen 10.7% compared to the same period in 1986.

The 0.9% increase in housing starts in July followed a revised 0.6% decline in June and even larger declines in March, April and May. It was the first time since 1981 that construction activity had declined for four consecutive months.

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