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Higher Mortgage Rates May Be Dampening Building : Home Construction Dips 6.9% in April

May 19, 1988|Associated Press

WASHINGTON — Construction of single-family homes dipped in April, the government said Wednesday, providing evidence that higher mortgage interest rates may be dampening building activity.

The Commerce Department said single-family home building dropped 6.9% to a seasonally adjusted annual rate of 1.10 million units last month.

Construction of multifamily units, which swing widely from month to month, soared by 23.3% to a rate of 466,000 to offset the single-family decline and produce an overall increase of 0.5%.

Economists said construction was not at unhealthy levels, particularly when compared to a sharp slump in December and January. But they added that the increase in apartment building was probably an aberration and that rising mortgage interest rates likely would depress single-family construction.

"The single-family number is not a bad number, but I think it's an indication that as rates rise through the year, it's going to impact the housing market," said Martin A. Regalia, chief economist of the National Council of Savings Institutions.

Rates on 30-year, fixed-rate mortgages were just under 10% through March, but began edging up in April and averaged 10.4% last week.

David Seiders, chief economist of the National Assn. of Home Builders, said investor fears of inflation pushed interest rates higher earlier this year than many analysts anticipated. Despite that, he said, surveys of home builders in May showed that buying is holding up fairly well.

"Our major concern for the rest of the year is what this inflation paranoia in the market is going to mean," Seiders added. "We're hoping that the inflation numbers themselves as they come in will be pretty orderly and that this psychology will break."

The overall 0.5% increase last month to 1.56 million units at seasonally adjusted annual rate followed gains of 2.3% in March and 9.9% in February. But housing activity was still 4.5% below last year, in part because of declines in December and January.

Housing starts plummeted 15.8% in December and fell 1.2% in January. Analysts attributed the slump to builders' fear that the October stock market crash would discourage home buyers. Since then, the economy has proved to be robust and interest rates have emerged as the new threat to housing activity.

Housing permits, considered a good sign of future construction activity, fell 4.1% in April to a seasonally adjusted annual rate of 1.42 million units. Single-family permits fell 6.8%, while multifamily units rose 2.2%.

"I don't think this is the start of a big multifamily construction boom," said Mark Obrinsky, an economist with the U.S. League of Savings Institutions. "Vacancy rates are still way too high in most parts of the country, particularly in the South."

The vacancy rate for rental housing was 8% during the first three months of 1988.

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