Housing Starts Slip in April, but Continued Strength Seen : Economy: Residential construction is down 2.5% nationally amid rising interest rates. The West sees a 6.8% drop.
Rising mortgage rates began to curb residential construction in April, but building activity is still expected to remain strong because of the improving economy.
Housing starts slipped 2.5% to a 1.46-million seasonally adjusted annual rate, the Commerce Department reported Tuesday. That was down from a revised 1.49-million rate in March, when construction rebounded 12.3% from a winter slump.
Tommy Thompson, president of the National Assn. of Home Builders, attributed increased starts in the Northeast and Midwest to a continuing rebound from severe weather.
“They were just starting homes that were sold earlier in the year when sales were not impacted by rising rates,” he said.
But he added that rising rates were probably responsible for larger declines in the South and West, which were less affected by winter storms.
Starts fell 6.8% in the West to a 342,000 rate, and 4.9% in the South to a 608,000 rate.
Still, Thompson and other analysts said overall starts remain strong. For the first four months of 1994, they were 19.4% above those of the same period in 1993. Starts totaled 1.29 million last year.
Economist David Berson of the Federal National Mortgage Assn. noted that the April construction level was higher than any month in 1993 except December, when starts reached a 1.61-million rate.
“There may be some modest interest rate effect, but it will be largely offset by stronger economic activity,” Berson said.
Fixed-rate, 30-year mortgages averaged 8.39% in April, up from 7.75% in March and a 25-year low of 6.74% last October, according to the Federal Home Loan Mortgage Corp. They had risen to 8.77% by last Thursday, the highest in two years.
Robert R. Davis, an economist with the Savings and Community Bankers of America, said the “change in the interest rate environment is not quite as precipitous as some would have you believe.”
“There still is strong demand, strong job growth, strong spending potential,” he said. “That will fuel a strong housing market into the fall.”
In fact, applications for building permits, often a barometer of future activity, rose 4.4% to a 1.37-million rate in April, up from 1.31 million a month earlier.
Nevertheless, analysts agreed that rising rates will have a slowing effect. The Home Builders said a jump in rates from 7% to 9% would add $209 to the monthly payment on a $150,000 mortgage.
“Higher rates make housing less affordable and hurt people at the margin, particularly first-time buyers,” Thompson said. As a result, the association has revised its 1994 forecast of housing starts to 1.38 million, down from its initial 1.43-million prediction.
Construction of single-family homes dropped 4.4% in April to a 1.21-million rate.
Housing Starts
Seasonally adjusted annual rate, in millions of units:
April, ‘94: 1.46
Source: Commerce Department
