- The Washington Times - Wednesday, January 22, 2003

Construction of homes and apartments posted an unexpectedly strong gain of 5 percent in December as the housing industry wrapped up its best performance in 16 years, fueled by the lowest mortgage rates in four decades.
The Commerce Department reported yesterday that building activity climbed to an annual rate of 1.84 million units in December, the highest monthly pace since June 1986 and well above economists' expectations.
The government also revised November activity levels higher to show builders starting new units at an annual rate of 1.75 million units during that month, 5.2 percent above the October figure.
For all of last year, builders began construction on 1.70 million homes and apartments, a 6.4 percent gain from the 1.60 million units constructed in 2001. It was the best year for construction of single-family homes and apartments since 1.81 million units were built in 1986.
For just single-family homes, the 1.36 million units begun last year represented the strongest performance since 1978, when builders broke ground on 1.43 million such homes.
"What started off robustly ended even more strongly, if that's possible," said Joel Naroff, chief economist of a Holland, Pa., forecasting firm. "During the year, housing starts reached levels not seen since the baby boomers hit the market in the 1970s."
The entire country shared in the building boom, with construction of single-family homes setting an all-time high in the South.
David Seiders, chief economist for the National Association of Home Builders, said builders were optimistic that 2003 would be another good year, although down slightly from last year.
Sales of both new and existing single-family homes are expected to set records for 2002. Mr. Seiders predicts sales would be down in both categories about 3 percent this year, owing to a slight rise in interest rates as the economy gains strength.
Building activity last year was propelled by the lowest mortgage rates since the early 1960s, with rates for 30-year mortgages falling from 7.14 percent at the beginning of the year to 5.93 percent in the final week of December. This is the lowest level recorded in Freddie Mac's nationwide survey, which goes back to 1971, and the lowest levels in other surveys dating to the 1960s.
While 30-year mortgage rates dipped even further to 5.85 percent in the first week of this year, analysts believe the rates will gradually head higher if forecasts of a strengthening economy prove correct.
The low mortgage rates reflected the campaign by the Federal Reserve to push a key rate it controls to the lowest level in 41 years to quicken the pace of recovery from the 2001 recession.

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