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Housing Starts Rebound, but More Slowing Seen : Economy: The Fed’s latest rate hike is expected to chill the already moderating market, after a 4.7% gain in July.

From Associated Press

Construction of new homes and apartments rebounded slightly in July, but analysts said the latest increase in interest rates will further brake an already slowing housing market.

“It will definitely have a chilling effect,” said Tommy Thompson, president of the National Assn. of Home Builders, referring to the rate increase engineered by the Federal Reserve Board on Tuesday, the fifth this year.

Shortly after the Commerce Department reported that housing starts rose 4.7% in July, the Fed announced the latest rate increase, which it said is designed “to keep inflationary pressures contained and thereby foster sustainable economic growth.”

The Fed said the move is “expected to be sufficient, at least for a time, to meet the objective of sustained, non-inflationary growth.”

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Mortgage rates mimicked earlier Fed moves, rising from an average of 7.14% in February, when the Fed first acted, to 8.62% in July. An increase in rates from 7% to 9% would add $209 to the monthly payment on a $150,000 mortgage.

Even without another rate increase, most analysts said, housing activity had already leveled off.

“We’ve seen the peak of housing activity for this business cycle,” said Robert R. Davis, an economist with the Savings & Community Bankers of America.

Thompson agreed. “The housing market is not moving ahead at a robust level and certainly not at the level of early this year,” he said.

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A second report Tuesday appeared to confirm the slowdown.

In its quarterly survey of regional real estate conditions, the Federal Deposit Insurance Corp. said the vigorous rebound in housing slowed over the summer, even though commercial real estate markets continued to improve.

The FDIC’s real estate index, based on a survey of 450 senior examiners and asset managers at federal regulatory agencies, registered 72 in July, down from the record high of 78 in April. Values above 50 indicate that more respondents thought conditions were improving than declining.

In its report, the Commerce Department said starts totaled 1.42 million at a seasonally adjusted annual rate in July, compared to 1.35 million the previous month, when construction fell 9.4%. But that was down from an average 1.44 million rate for the April-June quarter.

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Regionally, starts jumped 14.1% in the Midwest to a 340,000 rate and 12.5% in the West to 361,000.

But they fell 10.3% in the Northeast to a 122,000 rate and 0.7% in the South to 592,000.

The July advance was concentrated in the often-volatile apartment sector, which jumped 18.7% to a 222,000 rate after plunging 35.7% in June.

The interest-sensitive single-family sector rose just 2.5%, to a 1.19 million rate, the first increase in four months. Single-family construction represents about 85% of total housing starts.

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Still, starts in the first seven months of the year were 16.3% above those of the same period in 1993. Starts totaled 1.29 million in 1993 and many analysts expected them to total about 1.40 million in 1994 if rates change little in the rest of the year.

Applications for building permits, often a barometer of future activity, rose 2.1% in July to a 1.34-million annual rate. But this advance also was concentrated in the multifamily sector. Single-family applications were down 1.7%, the second straight monthly decline.

Housing Starts

Seasonally adjusted annual rate, in millions of units:

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July, ’94: 1.42

Source: Commerce Department


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