Building of homes at 4-year high

December 18, 1993|By New York Times News Service

WASHINGTON -- Spurred by eager buyers, the nation's builders broke ground on new homes at an annual rate of 1.43 million last month, a pace 3.9 percent faster than in October and the highest rate since early 1990.

The increase in housing starts, the fourth straight, consisted entirely of single-family homes, reflecting what analysts say has become a sizable migration of people from rental units to their first houses.

The biggest spur to housing construction, which began to accelerate in August, has been the lowest interest rates in 20 to 25 years.

Low rates, combined with generally stable prices, have made homes more affordable than at any time many renters under 45 can recall.

"Affordability conditions are excellent, with mortgage interest rates still at around 7 percent," J. Roger Glunt, president of the National Association of Home Builders, said this month after the government reported new-home sales for October.

Even the relatively dormant Northeast participated in the November advance. Construction began in the region on 142,000 new homes at a seasonally adjusted rate, the second-highest pace of the year and a 17.4 percent increase over October. Housing starts also jumped in the South but fell slightly in the Midwest and West.

"The housing sector continues to strengthen," economists at Merrill Lynch told clients in reaction to the Commerce Department's report. "There were only two months in the past 15 years where a higher level of single-family starts was recorded."

Permits for future construction bounded ahead 4.8 percent in November, a sign that the housing market -- and related sales of appliances, carpeting and other furnishings -- will remain vigorous in the new year. Housing gains have a strong "multiplier" effect on the economy, rippling through many trades and industries for months.

The revival in homebuilding, along with a comeback for the automotive industry, has been a principal engine of economic acceleration this autumn, contributing heavily to what is expected to be a rate of growth in gross domestic product for the October-December quarter of more than 4 percent.

The economy would be even stronger were it not for the shrinking military sector and a wave of corporate revamping that continues to stunt job growth.

Laurence H. Meyer & Associates, a St. Louis economic consulting company, said yesterday that it was raising its forecast for housing starts and residential construction for the quarter by about $2 billion, pushing its estimate for gross domestic product up by nearly two-tenths of a point.

An uptick in mortgage rates since mid-October seems to have led some fence-sitting buyers to conclude that nothing further was to be gained from holding off.

Such reversals "always move buyers," said Robert J. Strudler, chairman of U.S. Home Corp., the country's fourth-largest builder. He noted that decisions these days are quickly translated into new business since those willing to hold, or finance, large inventories of homes are becoming scarce.

Interest rates bottomed at 6.74 percent for 30-year mortgages in the week that ended on Oct. 22, according to the Federal Home Loan Mortgage Corp., and have climbed to 7.17 this week. The current level, however, is still nearly a full percentage point below what it was, 8.14 percent, at the start of 1993.

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