August Housing Starts Rebound 10.4%, U.S. Says : Construction: But analysts warn that the upturn may not signal a resurgent economy, particularly in California.
Construction of new houses and apartments surged 10.4% in August to a seasonally adjusted annual rate of 1.2 million units, the first increase in three months and the biggest gain since February, 1991, the Commerce Department reported Tuesday.
But analysts said the upturn does not necessarily signal a resurgent economy. They noted that applications for building permits, which forecast future construction, actually declined by 2% in August.
According to the Commerce Department, the West led the nation in housing starts, registering a 15.2% increase, and activity was strong in all other regions except the Northeast.
Complete figures on California housing starts were not available. But some analysts were doubtful that new California construction, after dropping 13% to an annual rate of 88,000 units in July, rebounded as strongly in August as the Commerce Department’s figures on nationwide construction suggest.
“My construction data shows that August was the worst month since January, 1988,” said John Karevoll, publisher of Southern California Real Estate Observer newsletter, who compiles housing starts from construction loans recorded by builders with county offices.
Karevoll, who measures new construction by dollar volume, estimates California housing starts totaled $633 million last month, down 32.1% from the $933 million in new construction in August, 1991, and 59.2% below the $1.55 billion in August, 1990.
“The recovery has been in a kind of start-and-stall pattern; the numbers are still fairly low,” added Ben Bartolotto, research director for the Burbank-based Construction Industry Research Board.
The Commerce Department’s housing start figures are estimated from a sample survey of building permits issued by local governments.
The government’s estimate takes into account seasonal variations in construction activity and represents a projection of the annual number of housing starts were they to continue at the same pace as the month surveyed. The figures include the construction of apartments, condominiums and single-family homes.
Housing starts are considered a key indicator of economic growth, and the higher than expected increase fueled renewed optimism among analysts who had fretted about declining construction in June and July.
‘We’re very encouraged by this trend,” said Tony Villamil, Undersecretary of Commerce for economic affairs, referring to the 20% increase in housing construction in the first eight months of 1992 over the same period last year.
President Bush also called attention to the figures while campaigning Tuesday in Shreveport, La. “Strong improvement in housing; inflation is down; interest rates are low, and our economy is poised for a takeoff--if we make the right choices in November,” he said.
“We had every reason to believe that housing should be doing better,” said Giulio Marpini, chief economist of Sanford C. Bernstein & Co. in New York, referring to housing prices and mortgage rates that are at their lowest level since 1973.
But noting that the government’s figures have a margin of error of plus or minus 8% and that building permit sales decreased last month, he cautioned against quick conclusions of a surging housing market.
“I think the levels reported today may be a little bit out of line,” he said.
Government economists also cautioned against relying on August’s figures, saying that favorable figures for a period of at least three months is needed before a trend can be considered reliable. August’s gain comes after unexpected declines of 2.4% in July and 4.1% in June.
Nationally, the inventory of unused building permits declined in August, implying that last month people built houses planned for construction in June or July.
The government’s figures are seasonally adjusted, but experts cited wetter than usual weather in the early summer months as a possible explanation for the August surge.
Construction of single-family homes increased by 8.5%, while new apartment construction soared by 23%. Overall, the figures for August were 13.1% higher than a year ago, the Commerce Department said.
The report caused bond prices to plunge, with traders expressing concern that the Federal Reserve Board will be less likely to reduce interest rates.
Matt Marshall reported from Washington. Jube Shiver reported from Los Angeles.
Housing Starts
Seasonally adjusted annual rate, millions of units
Aug., ‘92: 1.24
July, ‘92: 1.12
Aug., ‘91: 1.05
Source: Commerce Department
