Apartments Lead 7% Gain in June Building

Housing starts, led by a steep rise in apartment building, rebounded 7% in June as interest rates fell, the Commerce Department reported Wednesday. But analysts said single-family construction would remain weak as the economy continues to slow.

New homes and apartments were built at a seasonally adjusted annual rate of 1.4 million units last month, up from 1.31 million units in May, when construction fell 2.5%, the department reported.

While June’s increase was the highest since an 8.6% hike to 1.51 million units in February, 1988, it reflected a 28% rise in apartment construction, the highest since a 43% increase in April, 1988.

Single-family home construction fell in June for the third straight month, prompting David Seiders, chief economist for the National Assn. of Home Builders, to say this sector of the housing market is “still in a bit of the doldrums” because of both interest rates and the economy.

“Builders are extremely cautious,” said chief economist David Berson of the Federal National Mortgage Assn. “They’re waiting to make sure the decline in interest rates leads to a sustained increase in single-family sales.”

Fixed Rates Dip

The housing industry had been among the sectors of the economy hardest hit as interest rates edged upward during the past year while the Federal Reserve sought to restrain economic growth and contain inflation.

But as inflation seemed to slow, fixed-rate mortgages had fallen to 10.07% by the end of June from a peak of 11.22% in March and analysts began looking for a pickup in housing activity.

Seiders, however, said Wednesday’s report was not a signal that interest rates have revived the housing industry.

“The really interest-sensitive part is single-family construction, where we saw a bit of a decline,” he said, adding that another reason for the decline “is the slowing economy, which will leave housing rather weak for the rest of the year.”

Economist John Tuccillo of the National Assn. of Realtors called the weak single-family sector a reflection of the health of the residential construction market.

Construction of single-family homes fell 2% in June to an annual rate of 975,000 units, the lowest level since August, 1984 when 967,000 units were started. Single-family construction fell 5.1% in May and 4.7% in April.

Big Increase in West

Apartment construction, on the other hand, rose last month to an annual rate of 425,000 units. But this sector often is volatile: Construction of multifamily units had risen 2.6% in May after falling 26.6% in April.

Tuccillo saw two other disturbing factors: “a disproportionate volume of activity in the West” and a decrease in applications for building permits.

The West posted a 21.4% increase in starts to 443,000 units on a seasonally adjusted annual rate. The South also registered an increase, up 5.8% to 548,000 units.

But the Northeast had a 5% decrease to 171,000 units, while Midwestern starts were down 3.3% to 238,000 units.

Applications for building permits, a barometer of future multifamily housing activity, were down 3.5%, after increases of 1% in May and 8.5% in April. They had fallen the three previous months, however.