May Housing Construction Falls to ’82 Level

Housing construction fell 2.1% in May to the lowest level since the last recession in 1982, the Commerce Department reported Friday, but analysts said declining interest rates should turn the industry around in coming months.

Upturns in housing construction generally have positive ripple effects on such related industries as timber and building materials and on local economies. However, some analysts said they still foresaw continued softness in housing this year.

Mortgage rates peaked at 11.22% in March and fell to 10.2% by last week, causing many analysts to anticipate a jump in housing construction last month.

After the Commerce Department on Friday reported a decline in May housing activity, economists said the drop in rates had come too late to help last month but predicted improvement in the months ahead.

“It seems to us that the drop in interest rates occurred late in May and continued in June, so the drop really was not felt in the May figures,” said Robert Rosenblatt, an economist for the Mortgage Bankers Assn. of America.

“The impact of interest rates, which we expect to trend downward for the rest of the year, will have a positive effect on (housing) starts, and we should see an appreciable pickup in the fall,” Rosenblatt said.

David Berson, chief economist for the Federal National Mortgage Assn., said: “We expect single-family units to start going up in the next several months.”

Realtors Wary

Until recently, the Federal Reserve had boosted interest rates for over a year as it sought to restrain economic growth in an attempt to curb inflation.

John A. Tuccillo, chief economist for the National Assn. of Realtors, said many builders thought last month’s drop in mortgage rates might have been temporary.

“Further interest rate declines in June will provide the evidence needed to bring the markets around,” he said. “We expect the June numbers for housing starts to be higher.”

But some analysts were not so sanguine about the immediate future.

“Consumer sentiment generally is slackening,” said David Seiders, chief economist for the National Assn. of Homebuilders.

“It doesn’t seem the trend is getting any better, particularly single-family units,” contended real estate economist Michael Sumicrast. “I don’t see anything more than a drop-off for the rest of the year.”

The Northeast led the overall decline in housing construction last month, down 9.7% to a seasonally adjusted annual rate of 186,000 units.

Declines also were recorded in the Midwest, down 8.9% to 245,000 units, and the South, down 1.7% to 516,000 units.

Rate Increases in West

Construction was up 7.4% in the West to an annual rate of 364,000 units.

The Commerce Department reported that new homes and apartments in May were built at a seasonally adjusted annual rate of 1.31 million units, down from 1.34 million in April when construction fell 5%.

The pace in May was the slowest since the 1.30-million rate in December, 1982, and represented the fourth consecutive monthly decline, the longest string since activity slowed for five months in a row from February through June, 1987.

Commerce said construction of single-family homes was off 4.6% in May to an annual rate of 980,000 units, after rising 4.7% in April. The April pace followed drops of 4.7% in March and 14.2% in February.

Apartment construction rose 6.1% last month to an annual rate of 331,000 units. Construction of multifamily units fell 27.1% in April and 1.8% in March.

Applications for building permits, a barometer of future housing activity, rose 0.1% in May after surging 8.5% in April. They had fallen the three previous months.