Housing Starts Surge 7.6% in October; Best in 11 Months

Building starts for new housing, which market economists had expected to languish for another month, jumped 7.6% in October to an annual rate of 1.096 million units, the highestlevel in 11 months, the Commerce Department reported Wednesday.

The monthly housing starts are one of the economy’s most volatile indicators, and economists usually treat the numbers cautiously. But the October expansion, coming after an adjusted 3.3% dip in September, was an unexpected bit of good news.

It comes on the heals of an earlier report that construction employment in October had fallen by 29,000 jobs. In addition, bank lending for real estate remains low, and real estate values and mortgage rates are still dropping.

The Bush Administration, which has had difficulty finding much to praise in recent economic reports, was cheered by the figures. White House press secretary Marlin Fitzwater said the new numbers “are a welcome development” because housing starts are an important leading indicator of future economic activity. He added: “Continued declines in mortgage interest rates bode well for housing activity during the rest of the year.”

But analysts viewed Wednesday’s report with caution, noting that the strong gain from the January low probably will be offset by the fact that housing starts for the whole year are heading for the lowest annual total since 1945, probably fewer than 1 million units.

That point was made most forcefully by the real estate industry itself, in the person of Mark Ellis Tipton, head of the National Assn. of Home Builders, who noted that a recent survey conducted by his organization suggests that the October count may be an unsustainable, one-time blip.

“In November, our survey showed 39% of builders expected home sales to be poor over the next six months--that’s the worst reading since January, when the market was in the tank because of the uncertainty generated by the Persian Gulf War,” Tipton said in a statement distributed by his organization.

The reported increase from an annual rate of 1.021 million starts in September, originally estimated at 1.033 million, adds up to a new yearly high and the largest count since an annual rate of 1.130 million in November, 1990. It is a full 29.4% above last January’s recessionary figure of 847,000 starts, the lowest in nine years.

At the same time, building permit applications for future starts jumped 5.4% in October to an annual rate of 1.035 million, the highest since August, 1990, barely a month into the recession. That increase followed a 3% increase in September to a level of 982,000.

John A. Tuccillo, chief economist of the National Assn. of Realtors, said the upward jump in October means that lower mortgage rates--now at 14-year lows--and lower median prices for new houses were beginning to attract buyers, even though banks are reportedly chary of real estate lending.

“Low rates finally have started working,” Tuccillo said in a statement. “It was only a matter of time before smart capital found its way into the home building industry. Despite the complete absence of financial intermediaries, builders are finding a way to meet rising housing demand induced by low mortgage rates.”

Noted Michael Penzer, an economist at Bank of America in San Francisco: “Housing starts are among the most volatile of economic reports, and this could be just noise. But I would emphasize that we are coming off a nine-year low in January and have been on an upward trend.”

October Jump Housing starts, seasonally adjusted annual rate, millions of units Oct., ‘91: 1:10 Sept., ‘91: 1.02 Oct., ‘90: 1.03 Source: Commerce Department