Construction of new homes jumped 6 percent last month, the Commerce Department reported yesterday, reversing July's 3 percent decline and brightening forecasts for the remainder of the year.
The rate at which building permits were issued also rose, the department said.
Timothy Howard, chief economist for the Federal National Mortgage Association, said the August figures were "a little less" than he had expected, with "the main shortfall" in the single-family sector.
However, he said that he believes interest rates will remain relatively stable through the end of the year, and with generally improving economic conditions, which he also foresees, housing starts for the year could total 1.78 million.
That would make 1985 the best year since 1978, he said.
Kent W. Colton, executive vice president of the National Association of Home Builders, noted that starts have remained quite steady over the past two years -- generally running at annual rates of between 1.6 million and 1.8 million -- and "have been an important factor in keeping the economy from going too far off track."
Howard attributed the relative lag in single-family starts -- which would have been expected to surge in the current climate of lower interest rates -- to "a combination effect" of several factors. These include the sluggish economy in the first half of the year, recent tightening of lending requirements through much of the mortgage industry, and the fact that "some very attractive financing packages" were available last year that met some of the demand even during a period of higher interest rates, he said.
Warren Lasko, executive vice president of the Mortgage Bankers Association of America, also cited "the depression, if you will, in vacation homes," which have been hit hard by tax reform proposals.
Lasko added that although there are many very robust housing markets, "some markets are absolutely sick," notably Portland, Ore., Houston and much of the farm belt. Apparently, the "strong markets at best offset the sick markets," he said.
However, "in the aggregate, the figures are very comfortable," he said, and sustainable for the remainder of the year.
Colton said that a recent slight increase in interest rates was an important factor in the rise in housing activity.
Usually, he said, interest rises reduce home buying, but rates have been falling through most of the year, encouraging many buyers to wait in hopes of further declines.
Thus, "when rates start going back up, people start thinking about buying," realizing that the bottom has been reached, Colton said.
The surge in buying encourages additional construction, he noted.
The August figures work out to an annual rate of 1.749 million housing starts, the Commerce Department said. It also reported that permits -- usually an indicator of future trends -- climbed 4 percent from July to an annual rate of 1.754 million.
The revised July figures were for rates of 1.647 million for starts and 1.694 million for permits.
Commerce Secretary Malcolm Baldrige noted that the improvement in housing came at a time when "personal income has been rising more slowly" and deposit growth at thrift institutions has been "sluggish."
Nevertheless, Baldrige said, "with moderate house price increases and the lowest mortgage rates in over five years, I expect further moderate gains in homebuilding activity."