Housing Starts Increase 6.4% to 2-Year High : * Economy: A strong surge in apartment building leads the way, providing economists with more evidence of a sustained recovery.
A large surge in apartment building helped push the construction of new housing units up a surprising 6.4% in March to the highest level in two years, the Commerce Department reported Friday.
The increase in apartment building last month follows a near free fall in apartment construction in much of the country over the last six years and bolsters economists’ sentiment that a sustained recovery is underway.
“The numbers we are seeing are going to end all of the talk about a recession,” said Campbell Harvey, an economics professor at Duke University’s business school. “The housing rebound sets the stage for potentially robust growth in 1992.”
The Commerce Department said that builders began construction on single-family homes and apartments at a seasonally adjusted annual rate of 1.37 million units last month after an 8.7% increase in February.
Although apartment construction skyrocketed 74.5% to an annual rate of 265,000 units, after having fallen 20.4% in February, the construction of single-family housing declined slightly in March, dropping 2.7% to a rate of 1.1 million units.
There also is some worry over whether the current building boom is sustainable. That’s because the number of permits for new construction edged down 6.5% in March to an annual rate of 1.09 million units.
Many economists, who had been forecasting that housing starts would fall in March, have been caught off guard by the strength of housing construction this year. They had speculated last month that 1992’s strong performance benefited from unusually warm weather in the Midwest and Eastern United States in January and February and expected starts would slow in March.
“It’s surprising to see that big of a gain” in March, said Kermit Baker, director of economics at Cahners Economics in Newton, Mass. He said the apartment numbers are always more volatile than those for single-family homes.
“I would have felt more comfortable if we saw that kind of growth in the single-family side of the market,” Baker said.
However, analysts, pointing to the current low mortgage rates, remain hopeful that housing construction will continue to be robust.
Fixed-rate, 30-year mortgages hit a 19-year low of 8.31% in mid-January, according to HSH Associates, a mortgage research firm in Butler, N.J. While rates had climbed above 9% since then, they have reversed course in the past two weeks and now average 8.76%, the Federal Home Loan Mortgage Corp. said Friday.
Neither the Commerce Department nor independent analysts had separate March housing figures for California. However, the federal agency’s statistics revealed that both apartment and single-family home construction staged their biggest increase in the West, a region that includes California and 12 other western states.
In Southern California, where many landlords have been compelled to offer vacation trips and free rent to lure tenants, any increase in apartments could spill more red ink onto the bottom line of the financially beleaguered real estate industry, experts say.
“More apartment construction would be real harmful because the market is already glutted” in Southern California, said Katherine L. Bergh, an investment property specialist in the Sherman Oaks office of Grubb & Ellis Commercial Real Estate Services.
“People are crazy if they are building apartments. We see situations now where, when a lease come up, the tenant tells the landlord: ‘If you don’t reduce the rent, I’m moving.’ ”
Housing Starts Continue to Climb
Seasonally adjusted annual rate, millions of units.
March, ‘92: 1.37
Feb., ‘92: 1.28
March, ‘91: 0.92
Source: Commerce Department
