Housing Construction Up 4.4% in Month : Best Since December; Analysts Doubt Further Improvement

Housing construction rose 4.4% in September, the biggest advance since last December, the government reported Tuesday. But analysts said recent mortgage rate increases made further improvement unlikely.

The Commerce Department said new homes and apartments were built at a seasonally adjusted annual rate of 1.67 million units last month, compared to a revised August rate of 1.60 million units.

The increase was the sharpest gain since a 10.8% advance in December, 1986, but private economists said they did not think the upturn would continue because of big increases in home mortgage rates since September.

“This is not indicative of what is happening in the marketplace,” said Martin Regalia, chief economist for the National Council of Savings Institutions. “I think that sales and construction numbers will drop off significantly for the rest of the year due to the interest rate increases we have seen.”

The nationwide average for fixed-rate mortgages hit 11.58% last week, the highest in almost two years and up 2.5 percentage points from early March.

Builders Less Optimistic

Kent Colton, executive vice president of the National Assn. of Home Builders, said “interest rates were too high and they are still too high.”

Colton said his association’s monthly survey found that just 22% of builders expected good to excellent future sales, down sharply from 57% who were optimistic last spring.

The small rebound in August construction came from improvements in both single-family and apartment construction.

Single-family homes were started at an annual rate of 1.17 million units in September, following a 2.8% decline in August.

Construction of multiunit dwellings was up 2.9% to an annual rate of 501,000. However, even with the increase, apartment construction is still down 11.5% from a year ago, a decline blamed on high vacancy rates and the impact of the new tax law on real estate investments.

Building permits, considered a good sign of future activity, fell a small 0.6% in September, following a 1% increase in August.

The unchanged performance for housing construction in August represented a revision from a month ago, when the government initially reported that housing construction fell 1.5%.

The increase in September included a 7.2% advance in the South, where housing was started at a seasonally adjusted annual rate of 688,000 units. Even with the improvement, construction activity in the South was still 2.3% lower than it was a year ago.

Construction was off 0.5% in the West to an annual rate of 429,000 units, edged down 0.8% in the Northeast to an annual rate of 244,000 units.