Starts of construction of new housing dropped 12.2 percent in November, the sharpest fall in more than two years, the Commerce Department reported yesterday.
The sharp decline was blamed by industry analysts on unusually bad weather around the country that prevented much construction activity. However, housing starts so far this year have been lackluster, economists said.
The number of new houses and apartments started during November was equivalent to a seasonally adjusted annual rate of 1.55 million units, the slowest rate of housing construction since April 1983. The November starts were 3.3 percent below the level in November 1984; so far this year, housing starts have lagged 2.1 percent behind construction for the same period last year, the Commerce Department said.
Commerce Secretary Malcolm Baldrige said that the sharp drop "may be temporary," but he acknowledged that the recent trend has been flat. "The prospect "for reduced federal budget deficits improves the outlook for lower interest rates and for housing next year," Baldrige said.
The housing starts decline was surprising, said Warren Lasko, executive vice president of the Mortgage Bankers Association of America. But he added that "you can't take seriously one month's figures." He said that falling interest rates "almost have to increase sales" early next year.
"The drop is probably attributed most specifically to poor weather conditions in November and slow economic growth in some markets," said Kent Colton, executive vice president of the National Association of Homebuilders. "Although we certainly are not pessimistic because of the 12 percent drop, it does sound a note of caution."
Builders are being careful not to overbuild next year in light of their uncertainty about tax revision plans and their effect on the real estate industry, Colton said.
However, sluggish home sales could be another reason for the slow pace of home starts despite the decline in interest rates in the past seven months, economists said. Home sales have declined largely because prices of homes are still high, they said. Despite the drop in mortgage rates, average monthly payments on new homes have remained flat at around $750, primarily because of larger loan amounts and shorter terms of mortgages, according to Townsend-Greenspan economists. The average monthly payment for existing homes has reached a plateau at about $680, the economics firm said.
"New and existing home prices continue to be a constraint on the housing sector, with new home prices holding close to or slightly above $100,000 since March, while the six-month average price of existing homes has been rising for 17 months," Townsend-Greenspan said in a recent newsletter. "A comparison with figures from a year ago shows clearly that high prices are offsetting the decrease in interest rates."
Monthly payments on new homes have declined 8.9 percent from a year ago, while the effective interest rate has dropped 13.6 percent, Townsend-Greenspan said. The effective interest rate on existing homes has dropped 12.4 percent from a year ago and the monthly payment has risen 5.1 percent.
Commerce reported yesterday that starts of single-family homes dropped 17.5 percent in November while starts of buildings with five or more units dropped 5.9 percent. Starts of buildings with two, three or four units rose 21 percent.
Housing starts dropped 31.3 percent in the Northeast, the largest since a 42 percent decline in March 1984, Commerce said. Starts fell 12.7 percent in the Midwest, 3.7 percent in the South and rose 4.3 percent in the West.
Building permits dropped 2.4 percent in November from an annual rate of 1.688 million to 1.648 million, Commerce said.