Housing starts drop 1.3 percent

Jeannine Aversa

Monday, Nov. 19, 2001 | 10:10 a.m.

WASHINGTON -- Housing construction declined in October as builders displayed more caution in the face of sagging consumer confidence and rising unemployment.

The Commerce Department reported today that builders last month broke ground on 1.55 million housing units at a seasonally adjusted annual rate, a 1.3 percent drop from September.

The decline, which came after a 0.8 percent September increase, pushed housing starts to their lowest level in 10 months.

All the weakness came from single-family home construction, which fell by 1.2 percent in October, on top of a 1.1 percent decline.

Construction of apartments, condominiums and other multifamily housing rose by 1.9 percent last month, following an even bigger 3.4 percent gain.

On Wall Street, stocks rose on the hope that economic conditions would stabilize. The Dow Jones industrial average was up around 76 points in the first half-hour of trading.

The dip in overall housing construction reflects a climate of greater economic uncertainty for builders. Consumer confidence plunged in October to its lowest level in seven years and the nation's unemployment rate soared from 4.9 percent in September to 5.4 percent, factors that can make Americans less inclined to make big-ticket purchases such as a home.

By region, housing starts rose by 5.3 percent to a rate of 140,000 in the Northeast. They grew by 14.3 percent in the Midwest to a rate of 328,000. But in the South, starts held steady at a rate of 744,000 and in the West, they plunged by 16.7 percent to a rate of 340,000.

Housing permits, a good barometer of current demand, fell by 3.6 percent in October to rate of 1.47 million, the lowest level since December 1997.

Housing activity, aided by low mortgage rates, has helped to support the nation's economy during its more than yearlong slump. The average rate on a 30-year fixed rate mortgage in October was 6.6 percent, down from 7.8 percent for the same month a year ago.

Rates for 30-year mortgages dropped to 6.45 percent several weeks ago, the lowest level in 30 years of record keeping, Freddie Mac, the mortgage company had reported. But rates edged up last week to 6.51 percent.

Those low mortgage rates should help keep the housing market solid in the months ahead, economists say.

Aftershocks of the Sept. 11 terror attacks, not only left consumers and businesses shaken, but led builders in October to be a lot less optimistic about their expectations for sales.

However, builders' outlook has improved since then.

A survey by the National Association of Home Builders found that builders in November were more confident about sales for the next six months.

Still, builders are expecting housing starts and home sales to decline in the fourth quarter.

"We should expect about a 10 to 14 percent decline in housing in the fourth quarter," says Bruce Smith, the association's president. "The market will flatten out in the first couple of months of 2002 before rebounding into positive growth territory in the second quarter. Historically speaking, this will be a mild and short downturn for housing."

The economy contracted at a rate of 0.4 percent in the third quarter and many economists are predicting an even bigger drop in the current fourth quarter, thus meeting one common definition of a recession: two consecutive quarters of falling economic output.

Economists are hopeful the Federal Reserve's 10 rate cuts this year along with additional tax cuts and increased government spending being contemplated by Congress will pave the way for a recovery next year.