West Gets Off Easiest as Housing Starts Plunge 9.8% Across U.S.

Construction of new homes dropped 7.6% in the western United States last month, the least of any region in the country, while the rate fell nationally by a larger-than-expected 9.8%, the Commerce Department reported Thursday.

Housing starts nationwide fell to an annual rate of 1.38 million in January--the largest drop since a 21% decline in January, 1994. Housing starts had dipped 0.6% in December after climbing 5.9% in November.

“I don’t think we’re looking at the beginning of a big plunge in housing,” said Lyle Gramley, consulting economist with the Mortgage Bankers Assn. in Washington. “It’s probably the beginning of a gradual tailing off of housing activity in 1995.”

While housing starts were down across the nation, the month-to-month decline was particularly steep in the Midwest and Northeast, where construction was higher than normal in late 1994 because of unexpectedly warm weather, analysts said.

California, unlike the rest of the country, did not see a big surge in housing starts late last year and consequently suffered less from last month’s drop-off, economists said.

But the West did feel the effects of higher interest rates, which economists said are starting to hurt home buying nationally. California builders reported that heavy rains in January also contributed to the drop in housing starts.

But activity seems to be picking up in February, especially as mortgage interest rates have fallen in recent weeks.

In Southern California, the interest rate on a 30-year, fixed-rate mortgage peaked at about 9% in December before falling back to about 8.8% last week, according to a survey of local lenders by Mortgage News Co. in Santa Ana.

A half-percentage-point decrease in mortgage rates shaves about $36 off the monthly payment on a $100,000 fixed-rate, 30-year mortgage, said Earl Peattie, president of Mortgage News.

Wendy Harder, a spokeswoman at Mission Viejo Co. in Orange County, said sales in the firm’s planned communities in Aliso Viejo and elsewhere dipped about 10% in January from the month before. But, she added, sales have rebounded in February and so far are ahead of the same month last year.

Similarly, at Lewis Homes, which has about 30 housing developments in Southern California, sales picked up in late January after the Super Bowl ended and the rains subsided.

“In the last three weeks, the traffic and sales are way up,” said Richard Lewis, president of the company. “It seems like everyone is smiling again.”

Building in California has been in a gradual recovery for about eight months, with only a slight slowdown in January, said Ben Bartolotto, research director at the Construction Industry Research Board in Burbank. Data for the month is still incomplete, he said.

In all of 1994, single-family home starts were up 4.6% in Los Angeles County from the historically low level in 1993.

Mortgage rates that have climbed about two percentage points since a low in late 1993 have contributed to a falloff in home building across the country, economists said.

“It’s a bigger month-to-month drop than anticipated, but it’s not out of line with what we expect . . . as a result of the increase in interest rates,” said Michael Carliner, an economist with the National Assn. of Home Builders in Washington.

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Housing Starts

Seasonally adjusted annual rate, in millions of units:

January 1995: 1.38

Source: Commerce Department