Home Construction Rises to Highest Level in Four Years
Construction of new homes and apartments rose in October to the highest level in nearly four years as builders moved to meet consumer demand fueled by a strengthening economy and low mortgage rates.
Construction of new homes and apartments rose 2.7% to a 1.40-million seasonally adjusted annual rate in October, the Commerce Department reported Wednesday. That was the highest since a 1.44-million rate in February, 1990, and well above the 1.37-million rate many analysts had expected.
Contributing to the increase were advances in the Midwest and South, which offset losses in the Northeast and West.
The department also revised upward its previously estimated housing start rates for August and September, to 1.33 million and 1.36 million, respectively. Starts so far this year are 4.9% above those of the first 10 months of 1993.
“When builders respond like this, it means they are anticipating solid demand,” said economist David Lereah of the Mortgage Bankers Assn.
“The picture is not changing; it is just getting clearer,” agreed Mark Obrinski, an economist with the Federal National Mortgage Assn. “Low mortgage rates and a gradually improving economy continue to spark single-family construction, while still-high vacancy rates are holding back any substantial pickup on the multifamily side.”
“I think the dynamic making this possible is a big move out of rental housing,” said David Seiders, an economist with the National Assn. of Home Builders.
Seiders said there is a big backlog of people who want to be homeowners but were prevented from buying during the late 1980s and early 1990s by high prices and interest rates.
Price increases have moderated since the economy entered the recession, and mortgage rates have fallen over the past three years to a 25-year low of 6.74% during the week ended Oct. 21, according to the Federal Home Loan Mortgage Corp. However, rates rose to 7.12% during the week ended Nov. 11.
Many analysts believe rates will stabilize near the current level. If not, further escalation could curb sales, although some observers said recent increases probably stimulated purchases by consumers fearing even higher rates.
Still, builders appeared to be betting on stable rates in October. They boosted applications for building permits--a barometer of future activity--by 2.8%, to a 1.31-million rate. That was the highest level since a 1.33-million rate in February, 1990, and the fourth straight advance.
Single-family starts shot up 5.8% in October to a 1.22-million rate, highest since a 1.23-million rate in September, 1987, at the peak of the previous building boom.
But apartment construction fell 14.9% to a 172,000 rate, unable to sustain September’s 39.3% jump. Starts of apartments with five or more units fell 20.2% to a 138,000 rate.
Housing Starts
Seasonally adjusted annual rate in millions of units: Oct., ‘93: 1.40
Source: U.S. Department of Commerce
