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Housing construction in January climbs to highest level since 1986

| Thursday, Feb. 20, 2003

WASHINGTON (AP) -- Powered by the lowest mortgage rates in four decades, new home construction in January hit the highest level since 1986, the government reported Wednesday.

The Commerce Department said work was started on 1.85 million new single-family homes and apartment units at a seasonally adjusted annual rate last month. That was a 0.2 percent increase from December, when housing construction shot up 4.9 percent from the month before.

Construction in the single-family sector rose a solid 2.1 percent to an annual rate of 1.51 million units, the fastest pace in more than two decades. Construction of apartments actually fell by 8.7 percent to an annual rate of 303,000 units.

The overall rate of 1.85 million units was the best showing since May 1986.

Sales of both new and existing homes set records last year as buyers seized upon mortgage rates not so low since the early 1960s. In addition, home prices have risen as the stock market has declined, making homeownership look like a better investment.

"With sales at or near record levels and prices still rising, you would expect that new construction activity would be robust and it is," said Joel Naroff, chief economist at Naroff Economic Advisors.

David Seiders, chief economist for the National Association of Home Builders, said there may be some setback in the February construction activity because of the recent severe snowstorm in the Northeast.

He also said growing worries about a possible war in Iraq may make people cautious about committing to a big-ticket purchase such as a home. But he said this slowdown will be temporary and be offset by continued low interest rates.

Seiders forecast that construction activity this year likely will fall slightly to 1.65 million units, down 3.2 percent from last year's 1.71 million units, the best showing since 1986.

"Assuming we get past Iraq by the middle of the year, we are looking for home building to be close to as good as last year," Seiders said. "The single-family housing market has been moving along quite strongly given that we had a recession in 2001 and a staggering recovery since then."

Seiders said apartment construction will be effected by rising vacancy rates as more renters take advantage of attractive mortgage rates to become homeowners.

He said he believed interest rates would start to rise in the second half of the year, though gradually.

Freddie Mac, the mortgage company, reported that the nationwide average for 30-year mortgages stood at 5.86 percent last week, just higher than the 40-year low of 5.85 percent set in the first week of January.

Housing has been one of the few bright spots for the economy over the past year.

By region, housing starts posted the biggest gain in the West in January, an increase of 9.9 percent to an annual rate of 522,000 units. Housing construction was also up in the South, rising 3.8 percent to an annual rate of 839,000 units in January.

The other two regions of the country had declines in housing starts in January, reflecting severe winter weather. The biggest drop was in the Northeast, where housing starts fell by 16.7 percent to an annual rate of 135,000 units, a decrease that was attributed in part to bad weather conditions. Construction activity fell by 11.9 percent in the Midwest to an annual rate of 354,000 units.

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