Construction of new homes fell in March to the lowest level in two years as builders paused for lower mortgage rates to pare inventories and for the West Coast to dry out from severe flooding.
“We did see in 1994, and into the beginning of this year as well, a sizable buildup in unsold inventories,” said economist David F. Seiders of the National Association of Home Builders.
The Commerce Department, which reported the 7.9 percent drop in housing starts Tuesday, had said earlier that the February new-home backlog was the largest since June 1990.
“We’d been expecting that when the demand side weakened, builders would realize they had overdone it and start to trim back,” Seiders explained.
It was the latest sign of a slowing economy resulting from short-term interest rate boosts by the Federal Reserve designed to keep inflation in check. Long-term mortgage costs rose with the short-term rates.
Construction of new single-family homes, apartments and condominiums in March totaled a seasonally adjusted annual rate of 1.21 million, the Commerce Department said. It was lowest since 1.07 million in March 1993.
Only the Northeast registered an increase. Housing starts fell elsewhere, including a huge 20.7 percent plunge in the West, where Pacific storms inundated much of California.
The March slide marked the first three-month string of declines since the January-March period of 1993. Starts had fallen 3.7 percent from a revised 1.32 million rate in February. They totaled 1.50 As a result, starts during the first three months of 1995 were 9.5 percent lower than the same period of 1994, the first two months of which had been depressed by severe winter weather.
But analysts said they expect sales of new and existing homes to bounce back moderately during the traditional spring home-buying season as mortgage rates continue to fall.
“We’ve had a significant drop in mortgage rates in the last three months and this should stimulate buying activity,” contended David Lereah of the Mortgage Bankers Association. “We’ve already seen a pickup in mortgage applications.”
Federal Home Loan Mortgage Corp. figures show 30-year, fixedrate mortgages fell to 8.45 percent in March, down from 8.77 percent in February and 9.15 percent in January.
Rates have continued to fall, dipping to a 10-month low of 8.37 percent last week. A drop from 9 percent to 8 percent would subtract $71 from the monthly payment on a $100,000 mortgage.
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