Housing construction takes an unexpected drop Starts tumble 4.8% as builders are cautious despite steady sales

The economy

September 18, 1997|By BLOOMBERG NEWS

WASHINGTON -- Housing construction unexpectedly declined in August as builders started projects at the slowest pace this year, government figures yesterday showed.

Housing starts fell 4.8 percent last month to an annual rate of 1.363 million, the Commerce Department said in a report suggesting that a decline in mortgage rates has yet to rekindle demand. Permits for new construction also dropped, and July's total of new starts was revised lower, showing a decline of nearly 5 percent.

The report showed all regions of the United States reporting fewer starts, with the Northeast accounting for the greatest decline.

The last time starts were this low was in December, when they fell to a 1.353 million rate.

Builders are cautious because the number of prospective buyers is declining, though sales have yet to fall off. "The demand for homes seems to still be there, but in the past three weeks there has been a considerable slide in traffic," said Lori Steiner, vice president of Dominion Homes Inc. "It could be because people are busy getting their kids back into school, but we're watching that trend."

Even so, the average rate of new starts for the first eight months of the year -- 1.449 million -- remains close to the eight-year high of 1.476 million new starts recorded in 1996.

The Commerce Department's report suggests that the "housing market has topped out and, unless these lower [mortgage] rates restart it, it looks like it's going to subtract from third-quarter growth," said Astrid Adolfson, an economist at MCM MoneyWatch in New York.

Mortgage rates, a key component of whether buyers flock to buy houses, continued to decline in August -- though by the end of the month rates had risen a bit once again, reflecting broad investor concerns that the economy was growing fast enough to spark a resurgence of inflation.

The average rate on a 30-year, fixed mortgage was 7.48 percent in August, down from July's 7.50 percent.

That put the average principal and interest payment on a $100,000 loan at $697.85 last month, down from $699.21 in July.

Pub Date: 9/18/97

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