HOUSING : Home Building Falls 2.8% in July : Housing: But analysts expect the lowest mortgage rates in nearly two decades to halt any further erosion in the market.
Construction of single-family homes and apartments fell 2.8% in July, the Commerce Department said Tuesday, but analysts predicted that the lowest mortgage rates in nearly two decades will halt any further erosion.
Robert Villanueva, an economist for the National Assn. of Home Builders, said surveys of the organization’s membership early this month showed that builders plan to boost construction modestly.
“Not a surge,” he said, “but certainly a solid increase.”
In July, however, housing starts fell in every region except the South, which posted a slight gain.
Many analysts had expected construction to rise last month after the sharp drop in mortgage rates after the Federal Reserve slashed two short-term interest rates on July 2. Fixed-rate, 30-year mortgages are now below 8% for the first time in nearly 20 years.
Instead, the Commerce Department reported, housing starts dropped to 1.12 million at a seasonally adjusted annual rate, down from a 1.15 million rate in June, when they fell 3.8%.
“It really does show how cautious builders are,” said economist David Berson of the Federal National Mortgage Assn. But, he said the low rates and an increase in new home sales in June, the first in five months, should improve confidence.
Villanueva said builders are forecasting only about 1.2 million new homes and apartments will be started in 1992. That would be about 18% more than the 1.01 million started last year, but 1991 was the most dismal year since 1945 for new home building.
“An 18% improvement is about half the rate of increase we normally anticipate in the first year of previous recoveries,” Villanueva said.
An increase in the number of applications for building permits in July also suggested renewed housing activity. Applications, often a barometer of future construction, rose 3.7% for the first advance in five months.
Still, most analysts expect housing activity to remain muted this year, although improved over last year, when starts fell to 1.01 million, the lowest since 1945. So far, starts are 21% above the first seven months of 1991.
“People are still worried about jobs and incomes,” Berson contended. “It’s really a problem of confidence.”
David Lereah, an economist with the Mortgage Bankers Assn., agreed that growth in residential construction will be modest.
“Low interest rates have done all they could for the housing market,” he said. “We need help from other sectors of the economy.”
The Commerce report showed that single-family housing starts dropped 4.1% to a 959,000 annual rate after falling 1.9% in June.
But apartment construction rose 6.0%, to 160,000 units, after declining 14.7% a month earlier.
Regionally, starts were up only in the South, a slight 0.4% advance to a 457,000 rate. They plunged 7.7%, to 275,000 units, in the West and 5.5%, to 120,000 units, in the Northeast and were off 1.5%, to 267,000, in the Midwest.
Housing Starts
Seasonally adjusted annual rate, millions of units
July, ‘92: 1.12
June, ‘92: 1.15
July, ‘91: 1.05
Source: Commerce Department
