March Housing Starts Decline to Lowest Level in Two Years

Construction of new homes fell in March to the lowest level in two years as builders waited for lower mortgage rates to pare inventories and for the West Coast to dry out from severe flooding.

“We did see in 1994, and into the beginning of this year as well, a sizable buildup in unsold inventories,” said economist David F. Seiders of the National Assn. of Home Builders.

Construction of single-family homes, apartments and condominiums totaled a seasonally adjusted annual rate of 1.21 million in March, the Commerce Department said. That was the lowest since 1.07 million for March, 1993, and represents a 7.9% drop from February. The Commerce Department had said earlier that the February new-home backlog was the largest since June, 1990.

“We’d been expecting that when the demand side weakened, builders would realize they had overdone it and start to trim back,” Seiders said.

Only the Northeast registered an increase. The West reported a drop of 20.7% because of the wet weather, pushing the level of new construction here to an annual rate of 275,000, the lowest since July, 1993.

The figures offer the latest sign that the economy is indeed slowing in the wake of the Federal Reserve Board’s string of interest rate increases. Long-term mortgage costs rose with the short-term rates.

The March slide in housing starts also made for the first three-month string of declines since the January-March period of 1993. Starts fell 3.7% from a revised 1.32 million in February. (They totaled 1.5 million in March, 1994.) Starts were therefore 9.5% lower for the first three months of 1995 than for the first three months of 1994. (They were depressed for the first two months of that year because of severe winter weather.)

However, analysts said they expect sales of new and existing homes to bounce back moderately during the traditional home-buying season in spring as mortgage rates continue to fall.

“We’ve had a significant drop in mortgage rates in the last three months, and this should stimulate buying activity,” said David Lereah of the Mortgage Bankers Assn. “We’ve already seen a pickup in mortgage applications.”

Federal Home Loan Mortgage Corp. figures show 30-year, fixed-rate mortgages fell to 8.45% in March, down from 8.77% in February and 9.15% in January.

Rates dipped to a 10-month low of 8.37% last week. A drop from 9% to 8% would subtract $71 from the monthly payment on a $100,000 mortgage.

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Housing Starts

Seasonally adjusted annual rate, millions of units:

March 1995: 1.21

* Source: Commerce Department