- The Washington Times - Thursday, February 20, 2003

New-home construction in January hit the highest level since 1986, powered by the lowest mortgage rates in four decades, the government reported yesterday.
The Commerce Department said work was started last month, at a seasonally adjusted annual rate, on 1.85 million new single-family homes and apartment units. 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 the lowest mortgage rates 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 effect will be temporary and be offset by continued low interest rates.
Mr. 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," Mr. 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."
Mr. Seiders said apartment construction will be affected by rising vacancy rates as more renters take advantage of attractive mortgage rates to become homeowners.
He predicted 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, slightly higher than the 40-year low of 5.85 percent set in the first week of January.

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