Builders Cap Worst Year Since 1997

Thursday, January 18th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) â€” After a strong 1999, builders broke ground on fewer new homes, condominiums and apartments in 2000 as a drop in consumer confidence late in the year and higher mortgage rates earlier cut into demand.

Still, housing construction remained at a healthy level even though builders posted their weakest performance since 1997.

The Commerce Department reported Thursday that builders started work on 1.59 million housing units last year, a 4.4 percent drop from the 1999 mark of 1.67 million, the highest since 1986.

``Housing starts took a sizable haircut over the course of 2000'' but the level of activity was still firm, said Ken Mayland, president of ClearView Economics.

A number of factors affected housing activity in 2000. Higher mortgage rates dampened demand in the first half of the year, economists said. But, they added, cheaper rates in the second half helped to cushion the blow of other forces that can make people feel less inclined to make big purchases: a drop in consumer confidence, higher energy prices, stock market volatility and slower job growth.

After hitting a five-year high of 8.64 percent in May, mortgages rates have fallen, helping to keep housing and construction activity at solid levels even as the overall economy has slowed.

In December, the average rate on a 30-year fixed-rate mortgage was 7.4 percent, down from 7.7 percent in the previous month and from 7.9 percent in December 1999. This week the 30-year rate averaged 7.02 percent.

While last year's 1.59 million level was the lowest since 1.47 million in 1997, ``builders felt pretty good about the state of affairs through the end of 2000,'' said David Seiders, chief economist at the National Association of Home Builders.

But looking ahead, builders are ``concerned about where the economy is going ... and whether buyer demand will hold together,'' Seiders added. He expects housing construction to decline by 5 percent this year.

For all of 2000, work on new single-family homes declined by 5.4 percent to 1.26 million. Construction of condos, apartments and other multifamily housing slipped by 0.4 percent to 330,000.

Regionally last year, housing starts fell by 7.9 percent in the Midwest to 328,000, 4.8 percent in the South to 724,000, 1.6 percent in the Northeast to 151,000, and 1.4 percent in the West to 390,000.

Worried that the rapidly slowing economy could slip into a recession, the Federal Reserve, in a rare move between regularly scheduled meetings, cut interest rates on Jan. 3 by one-half a percentage point.

President-elect Bush has said more needs to be done to bolster the economy, notably passage of his $1.6 trillion 10-year tax cut.

In December, housing construction rose by a modest 0.3 percent to a seasonally adjusted annual rate of 1.58 million, surprising analysts who expected a drop in part because of the bad winter weather.

All the strength came from single-family homes, which rose 6 percent in December, helped out by cheaper mortgage rates. Multifamily housing starts plunged 20.8 percent.

Building permit applications, a barometer of future construction, fell 6.6 percent in December to a seasonally adjusted annual rate of 1.49 million.

In another report Thursday, new claims for state unemployment insurance fell last week by 37,000 to 306,000. That still left them at a level suggesting demand for labor has eased.

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On the Net: Housing report: http://www.census.gov/indicator/www/housing.html