February Housing Starts Surge to a 14-Month High

Housing starts shot up to a 14-month high in February as builders rushed to pour foundations in anticipation of a surge of home buyers wanting to beat rising mortgage rates, according to government data released Tuesday.

But some analysts said the surge will probably recede if rates continue to creep up and make home financing more expensive.

“Whenever you have a sharp run-up in rates, you have a certain percentage of buyers who go out immediately and buy a home,” explained David Lereah, an economist with the Mortgage Bankers Assn.

“But that’s just the immediate response,” he said. “After that, it’s a dampening effect because other prospective buyers are priced out of the market.”

Still, the National Assn. of Home Builders’ latest membership survey found builders’ expectations still growing in early March, with its housing market index rising from 50 to 60, the highest since May 1994.

Construction of single-family homes and apartments jumped 3% in February, to a 1.49-million seasonally adjusted annual rate, the Commerce Department said Tuesday. It was the highest level since starts totaled 1.51 million in December 1994.

Starts were up in every region except the Midwest, where they suffered a double-digit decline despite improving weather. In the West, starts rose 5.7% to a 425,000 annual rate, and 4.2% in the South to 647,000. Starts in the Northeast surged 33.7% to a 127,000 rate, the largest gain since a 35.2% jump in November 1994.

The report also shows that building activity in January was not as strong as first thought. Starts rose just 1.5%, to a 1.45-million annual rate, rather than the initial 4.4% estimate.

But the report suggests that new construction will probably continue in the immediate future. Applications for building permits rose 1.5% in February, to a 1.39-million annual rate, after falling 7.2% a month earlier. Permits often are a barometer of future activity.

Lereah and other analysts predict housing activity this year will surpass that of 1995, when starts declined to 1.35 million from 1.46 million in 1994, the first drop since the 1991 recession. Lereah predicted 1996 starts will total 1.39 million.

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Housing Starts

Seasonally adjusted annual rate, in millions of units:

February 1996: 1.49

Source: Commerce Department