Housing Starts Down Sharply In March

The Commerce Department said total housing starts fell 11.2 percent to a seasonally adjusted annual rate of 1.60 million units in March following a much higher rate of 1.81 million units in February. The March decline was the steepest one-month drop since a 17.0 percent decrease in January of 1994, and it suggested that recent interest rate increases by the Federal Reserve have begun to slow the economy.

The March decline, which followed a 3.6 percent rise in February, came from a steep drop in condominiums, apartments and other multifamily housing. Starts on single-family homes were virtually unchanged, up 0.2 percent to a pace of 1.31 million units. However, single-family starts in March were down 4.9 percent compared with starts in March 1999. "Higher interest rates are clearly having an impact," said First Union economist Mark Vitner.

Contrary to the single-family starts, sales of townhouses and apartments fell dramatically. Starts on buildings containing between two and five units fell 41 percent to a 295,000 unit pace compared to a 500,000 pace and 30.5 percent rise in February.

Starts fell fastest in the Midwest, dropping 31.9 percent to a 320,000 unit pace and dropped 18 percent in the Northeast to a 159,000 pace. Starts fell a more modest 4.5 percent in the West to a 379,000 unit pace while starts were unchanged in the South at 746,000 units.

New building permits, a sign of future construction activity, declined by 4.5 percent in March to a rate of 1.58 million, on top of a 6.7 percent drop the previous month.

Surveys conducted in March and April by the National Association of Home Builders indicate that builders are less optimistic about sales expectations for new single-family homes. The culprits: higher mortgage rates and shortages of skilled labor and finished lots for development. The average interest rate on a 30-year fixed-rate mortgage in March was 8.24 percent, up from an average 7.04 percent for the corresponding month last year.