Saturday, September 18, 1999
Strong home-building trend surprises analysts
Mortgage rates up, but so are incomes
BY MARTIN CRUTSINGER
The Associated Press
WASHINGTON — Construction of new homes and apartments posted a 0.4 percent increase in August, leaving analysts marveling at the continued strength in housing despite rising mortgage rates.
The Commerce Department reported Friday that construction climbed to a seasonally adjusted annual rate of 1.68 million units last month, led by another big rise in apartment building.
The performance surprised analysts. Many had been expecting a 2 percent decline in housing starts because of higher mortgage rates, which in August climbed briefly above 8 percent after starting the year below 7 percent.
Many economists said they were revising their housing forecasts upward given that the slowdown they have been forecasting for some months has yet to occur.
“It would be foolish to characterize the housing market as anything but still going flat out,” said David Orr, chief economist at First Union in Charlotte, N.C.
Michael Carliner, economist at the National Association of Home Builders, thinks housing construction for the whole year will hit a 13-year high of 1.66 million units, even better than last year's 1.62 million.
Mr. Carliner said higher lending rates have failed to dampen demand because the overall economy is performing better than expected, with unemployment in August returning to a 29-year low of 4.2 percent.
“Incomes and employment have at least as much effect on housing as mortgage rates, and they are doing better than expected,” Mr. Carliner said.
The government also reported this week that retail sales, led by brisk demand for autos, surged 1.2 percent in August, indicating the consumer is still going strong even after two Federal Reserve interest rate increases.
Many analysts said the continued red-hot consumer sector probably means Fed officials will boost rates for a third time this year, probably at their next meeting on Oct. 5, to accomplish the slowdown they desire.
“Most economists, including those at the Fed, were expecting housing to be a drag on the economy this year. Instead, it is adding solidly to growth,” said economist Joel Naroff of Holland, Pa.
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