Bad Weather Sends Home Starts Down 12.2% in December

WASHINGTON —  Bitter weather on the West Coast sapped new-home building in December, the government said Wednesday, bringing the industry’s best year since 1988 to a weak close.

Starts on new homes and apartment buildings tumbled 12.2% from November’s pace to a seasonally adjusted annual rate of 1.33 million last month, the Commerce Department said. It was the weakest rate in 1 1/2 years, since 1.3 million in June 1995.

Analysts said home building would probably slow in 1997, though not precipitously, as job growth and income gains also slow after a vigorous 1996 and mortgage rates edge up.

For all of 1996, builders broke ground on 1.47 million new homes, up 8.9% from 1.35 million in 1995. It was the highest since 1.49 million homes were started in 1988.

Also, the Federal Reserve Board issued its so-called Beige Book report on the national economy, which showed steady, moderate expansion early in 1997 with little upward pressure on prices.

“Economic growth in December and early January was moderate in most parts of the country,” the central bank said in its report, which is based on interviews with business owners in the Fed’s 12 districts throughout the U.S.

It buttressed analysts’ expectations that Fed policymakers, who will use the report when they meet Feb. 4 and 5 to plot interest rate strategy, will leave rates alone.

The Fed noted “scattered evidence of increasing wage pressures” but did not sound an alarming tone on inflation, mirroring to some extent the comments of Fed Chairman Alan Greenspan, who on Tuesday testified before the U.S. Senate.

Greenspan signaled that the Fed is unlikely to raise interest rates but would act quickly if inflation pressures heat up.

Weaker December housing starts were expected to slow the rate of increase in fourth-quarter gross domestic product because residential construction is a significant contributor to the economy, further reducing pressure on the Fed to act to curb activity.

“Both the interest-rate swing and the slowdown in job growth inevitably were going to take some steam out of the housing market, and it clearly has happened,” said economist David Seiders of the National Assn. of Home Builders.

Seiders said 1997 starts would probably fall 6% or so from last year to about 1.38 million units, which, he said, was still a healthy rate, especially because there has been scant sign of excess inventories of completed, unsold homes.

While mortgage rates edged lower last month, they stayed well above their levels a year earlier.

Every region reported a lower rate of starts in December, but the biggest drop came in the West, where starts plunged 29.2% to an annual rate of 257,000.

That was the lowest rate in the region since February 1993, when the annualized rate was also 257,000. The Western region includes the California market as well as Washington and Oregon.

The West was pummeled by heavy snows, flooding and mudslides in December, which, analysts said, had an impact on the monthly figures despite efforts to adjust them for seasonal influences.

“When you have floods, you can’t see holes in the ground,” said economist David Lereah of the Mortgage Bankers Assn.

“It’s clear the housing sector is coming off its highs from late summer,” Lereah said. “It’s going to be at a healthy pace in 1997, but off its peaks.”

In the Northeast, December starts fell 2.3% from November to 125,000 a year and in the Midwest they fell 7.9% to 302,000.

Construction starts in the South, the biggest regional market, dropped 7.2% to an annual rate of 645,000.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

U.S. Housing Starts: Seasonally adjusted annual rate, in millions of units.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Trend in Home Starts: Yearly totals for the last 10 years, in millions of units.