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Home Building Falls 8.2% for Biggest Drop in 3 Years

November 18, 1987|Associated Press

WASHINGTON — Housing construction fell 8.2% in October, the biggest decline in more than three years, the government reported today about what analysts say is one of the first signs of the impact of the stock market crash.

The Commerce Department said new homes and apartments were started at a seasonally adjusted annual rate of 1.51 million units in October, the slowest pace since April, 1983.

The percentage decline from the September level was the biggest monthly setback since an 8.4% drop in housing starts in August, 1984.

The steep drop in October, which followed a 4% September increase, was likely due in part to the record 508-point fall recorded for the 30-stock Dow Jones Industrial Average on Oct. 19.

Analysts said jitters about the economy probably played a part in builders' decisions about starting new construction in the final days of the month.

But they said an even more significant factor depressing construction activity was the sharp rise in mortgage interest rates in the weeks preceding the market collapse.

Thirty-year fixed-rate mortgages hit a high of 11.58% in mid-October as the Federal Reserve tightened up on credit to guard against threats of renewed inflation. Mortgage rates have now declined, however, to 10.66% as the central bank has switched its focus from fighting inflation to fighting a recession.

"We are seeing the combined effects of what had been sharply rising interest rates and the impact of the stock market collapse," said Warren Lasko, executive director of the Mortgage Bankers Assn. "It caused builders to pull in their horns, at least in October."

Many analysts do not believe the recent decline in mortgage rates will be enough to revive the housing industry as consumers, worried about the future, are expected to cut back on purchases of homes and other big-ticket items.

Housing activity has been weakening for most of the year under the impact of rising mortgage rates. For the first 10 months of the year, housing starts are 10.6% below the same period in 1986.

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