Single-Family Housing Starts Take Another Dive in May

Builders reduced construction of single-family houses in May for the second straight month, reflecting their increased apprehension over a slowdown in home sales due to rising interest rates.

Many analysts said higher rates will curb activity for the rest of the year, though they predict that single-family housing starts in 1994 will top last year’s total.

“The single-family sector is the bulk of the industry and . . . we’re starting to see it taper off,” said economist David Lereah of the Mortgage Bankers Assn.

“We’re seeing a general drift down in single-family starts,” agreed economist Stan Duobinis of the National Assn. of Home Builders. “Interest rates are moderating a little now, which certainly will keep the decline from being overwhelming, but we will see a continued decrease.”

The Commerce Department said Thursday that overall housing starts rose 2.6% in May to a seasonally adjusted 1.51 million annual rate. Increases in the South and West offset declines in the Northeast and Midwest.

But the growth was entirely in construction of apartment buildings.

Single-family starts, which represent 80% of housing construction and are most affected by mortgage rate changes, slipped 0.5% to a 1.20-million annual rate. They had fallen 5% in April to a 1.21-million rate.

And though multifamily starts jumped 16.7% to a 308,000 rate, many analysts said the increase was unsustainable. They predicted construction would decline in June.

Despite the drop in the single-family sector, housing starts for the first five months of 1994 were 21.1% higher than a year earlier. For all of 1993, starts totaled 1.29 million units; many analysts expect they will climb to nearly 1.40 million this year.

The Labor Department also reported Thursday that the number of Americans filing first-time claims for unemployment benefits fell by 11,000 last week to a seasonally adjusted 348,000, the lowest in nearly two months.

The decline was expected by most economists, who say the job market continues to improve but at a slower rate than earlier in the year.

The reports are the latest signs of a slowing economy, following four interest rate increases engineered by the Federal Reserve Board to check inflation.

Mortgage rates have risen from a low of 6.97% last October to 8.33% this week.

Housing Starts

Seasonally adjusted annual rate, in millions of units:

May, 1994: 1.51

Source: Commerce Department