Home Construction Drops 8.2% in 1988

Housing construction dropped 8.2% in 1988 to its lowest level in six years, the government reported today, but analysts said the industry remained in good shape.

Construction of both single-family homes and apartments fell during 1988 to leave total housing starts at 1.49 million units. It was the poorest showing since the recession year of 1982, when 1.06 million units were built.

Analysts said that despite the decline, which is likely to continue into the current year, 1988 was a good year for the housing industry because the level of construction remained relatively high.

“We do not get very concerned when we’re building over a million single-family homes a year,” said Dale Stuard, president of the National Assn. of Homebuilders.

“There’s nothing to get panicky about,” he said. “It’s a very controlled slowdown.”

Analysts said the decline had been expected because much of the pent-up demand for homes that developed during the recession was satisfied in subsequent boom years, and housing requirements are decreasing with the aging of the Baby Boom generation.

In addition, mortgage interest rates are inching upward. Interest on fixed-rate mortgages reached 10.81% last week, according to the Federal Home Loan Mortgage Corp.

Economist Mark Obrinsky of the U.S. League of Savings Institutions said the housing industry “held up reasonably well, all things considered. Nonetheless, it is a decline and I think we’ll see a little further decline in 1989.”

Housing construction reached its post-recession peak in 1986, when 1.81 million units were built, but then began sliding. Analysts believe further decreases are inevitable as interest rates continue to rise, the economic expansion runs its course and demographics take their toll.

“As we go through the years toward the year 2000, we need fewer and fewer net additions to our stock of housing,” said economist Richard Peach of the Mortgage Bankers Assn. of America. “We’re just not creating as many new households as we used to.”

December’s seasonally adjusted annual construction rate of 1.52 million units was down a moderate 2.2% from a month earlier.