Housing Starts Rebound 12% in Biggest Jump Since 1986

Housing starts bounced back 12% in October from September’s seven-year low, the Commerce Department reported Friday, and analysts said they expect the construction rate to remain stable through the first quarter of 1990.

New home construction rebounded to a seasonally adjusted rate of 1.42 million units for the biggest gain in three years, following September’s extremely weak 1.27-million rate.

The October jump, the biggest since a 13% rise in December, 1986, left housing starts far above economists’ expectations of a 1.30-million-unit rate.

“It’s a very welcome number and brings us back to July levels,” said economist Dave Seiders of the National Assn. of Home Builders. “I was really getting worried about where housing was headed.”

Housing starts react quickly to changes in interest rates and are a leading indicator of activity in the real estate industry.

Economists said the October rise left housing starts near a healthy average of 1.40 million units this year, offering reassurance that September’s steep fall was nothing more than an aberration.

“The September figure led you to believe the housing industry was going down the tubes, but that’s simply not the case,” said economist Richard Peach of the Mortgage Bankers Assn.

Building permits in October rose nearly 1% to 1.33 million, indicating that home building activity will likely be sustained in the coming months.

Economists said the rebound in housing from the depressed levels of August and September could help keep the economy on a slow-growth course and away from recession, when other sectors such as autos and basic industry are suffering.

“New residential home investment will provide stimulus to the economy in the fourth quarter,” Peach said.

Economists expect the economy to slow in the months ahead, leading to a gradual easing of interest rates by the Federal Reserve. But continued growth in some sectors, such as housing, will prevent a dramatic shift in Fed policy.

Housing construction weakened last spring because of high interest rates, but the industry showed signs of strength in June and July. The summer gains dwindled in August and the decline accelerated in September.

Long-term mortgage rates are now around 9.79%, compared to a high of around 10.22% in September, but consumers have still shied away from making major purchases of homes and cars.

Sales of new homes plunged 14% in September, while October retail sales contracted by 1%--the result of a drop in auto sales.

But lower interest rates are spurring the construction industry to build more homes, economists said. Single-family housing starts rose 6.9%, while new apartment building construction increased 28%.

Housing starts were strong in all regions of the country, rising 6% in the Northeast, 16.5% in the Midwest, 17.1% in the South and 5.1% in the West.