Interest Rates Put Cloud Over Jump in Housing Starts : Economy: Good weather boosts annual rate to 1.47 million new homes. Analysts say Fed hikes held down figure.
Housing construction rebounded 12.1% in March from a winter slump, but builders said they fear sales may be threatened by rising interest rates.
David F. Seiders, an economist with the National Assn. of Home Builders, said a late-March/early-April survey of 455 members found many expressing concern over the increased cost of mortgages.
“Obviously, builders are aware of how important rates are to their businesses,” he said.
After spiking to a 1.61-million annual rate in December, housing starts plunged 21.2% in January, to 1.27 million, because of the harsh winter. Continued inclement weather held the rebound in February to just a 3.4% gain, at 1.31 million.
But with arrival of more temperate weather in March, starts jumped 12.1% to a 1.47-million annual rate, the Commerce Department said Wednesday. That was even higher than the 1.41-million rate many analysts expected.
Every region in the nation posted gains, led by a 30.4% jump in the Midwest.
Regionally, the 30.4% jump in the Midwest pushed starts to a 330,000 annual rate, the highest since a 353,000 rate in the final month of 1993.
Starts were up 8.7% in the West to a 375,000 rate; 8.4% in the Northeast to 142,000 and 7% in the South to 626,000.
“If (interest) rates had not gone up, March would have been even better,” Seiders said.
According to surveys by the Federal Home Loan Mortgage Corp., mortgage interest rates averaged 7.75% in March, up from 7.14% a month earlier. They hit 8.47% two weeks ago but dipped back to 8.26% last week.
Treasury Secretary Lloyd Bentsen expressed concern Tuesday over higher long-term interest rates, which he contended could curb overall economic growth.
Bentsen told a Senate Appropriations subcommittee that the Federal Reserve Board’s recent boosts in short-term interest rates were anticipated and are unlikely to derail the expansion.
But he added: “I don’t see the justification for the increase in long-term rates. . . . As the markets stabilize, hopefully, long-term rates will drop down to a more normal level.”
Robert R. Davis, an economist with Savings & Community Bankers of America, agreed that higher mortgage rates “will have a moderating effect on demand” for new houses.
But he said that could be offset in the near term by potential home buyers accelerating their purchases out of fear of further increases in mortgage costs.
Seiders now is forecasting 1.39 million starts this year, down from 1.43 million in January, and is “poised to make another forecast cut if the financial markets do not settle down.”
Still, that would be more than the 1.29 million starts in 1993. Starts during the first three months of the year are already 20.6% above those of the same period in 1993.
Applications for building permits, often a barometer of future activity, rose 5.1% in March to a 1.31-million rate after falling for two straight months.
Construction of single-family homes shot up 11.3% in March to a 1.25-million annual rate after a 0.4% loss a month earlier. It was the highest level since a 1.38-million rate in December.
Apartment construction also rose, climbing 16.5% to a 226,000 rate, after jumping 32.9% the previous month. It was the highest level since December, when multifamily starts hit a 229,000 rate.
Housing Starts
Seasonally adjusted annual rate, in millions of units:
Mar., ‘94: 1.47
Source: Commerce Department
