Torrid Pace of U.S. Housing Starts Cools Off in August
After hitting an 11-year high, construction of homes and apartments dipped in August but remained on track for a banner year, with mortgage rates at a nearly three-decade low.
The Commerce Department said Friday that construction of homes and apartments fell 5.5% last month to a seasonally adjusted annual rate of 1.61 million units.
While the August setback was the biggest decline in 20 months, analysts noted that it was occurring after construction activity had surged to an annual rate of 1.71 million units in July, the fastest pace since March 1987.
Even with the decline, housing activity in August was 16.6% above the level of a year ago, reflecting a surge in activity propelled by falling mortgage rates and low unemployment.
“This will be the best year for housing since 1987,” said David Seiders, chief economist at the National Assn. of Home Builders. “We have had the best of all possible worlds with great job growth, consumer confidence close to record levels and interest rates coming down.”
A separate report Friday showed that consumers’ upbeat mood about their finances softened slightly this month. The University of Michigan’s preliminary index of consumer sentiment for September fell to 100.4 from 104.4 in August, said people with access to the study.
Gains and losses in the index indicate U.S. consumers’ degree of comfort with their finances and the state of the economy. In addition, the university’s preliminary index of future expectations fell to 93.2 this month from 98.3 in August.
Mortgage rates at their lowest level in nearly 30 years have pushed sales of both new homes and existing homes to record levels already this year. But with the Asian crisis starting to be felt more in the United States, both in rising unemployment in manufacturing and in falling stock prices that have shaken consumer confidence, some economists said the boom in housing may slow in coming months, despite the low mortgage rates.
“We expect the economy to be on a slow-growth path,” said Karen Dexter of Merrill Lynch in New York. “Housing starts should remain strong but activity has probably peaked.”
For August, construction of single-family homes declined 4.2% to an annual rate of 1.25 million units. Construction of multifamily units dropped an even sharper 9.5% to an annual rate of 368,000 units.
The declines hit all regions of the country. The West suffered the biggest setback, a drop of 8.6% to a seasonally adjusted annual rate of 394,000 units.
Applications for building permits, a good indication of future activity, were up 2.2% in August to an annual rate of 1.62 million units, with an 8.6% rise in applications in the multifamily sector offsetting no increase in single-family permits.
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Housing Starts
Seasonally adjusted annual rate, million of units:
1998, August: 1.61 million
* Source: Commerce Department
