Housing starts rose 2.1 percent in August, boosted by a double-digit jump in apartment construction, the government said Wednesday. Single-family construction, however, continued to be hammered by higher mortgage rates.
Strong gains in the Northeast and South offset declines in the Midwest and West.The Commerce Department said starts totaled 1.44 million at a seasonally adjusted annual rate, up from a revised 1.41 million in July. Starts originally were reported to have totaled 1.42 million in July.
The increase surprised many analysts, who had predicted builders had broken ground on just 1.4 million units last month. It helped push starts for the first eight months of the year 16.1 percent above the same period of last year.
Apartment construction surged 28.5 percent, to a 275,000 annual rate, on top of a 9.7 percent advance in July.
But single-family starts, which represent about 80 percent of new housing construction, dropped 2.7 percent for the sixth decline this year.
Economist David Lereah of the Mortgage Bankers Association expects mortgage rates to reach about 9 percent by the end of this year, from less than 7 percent nearly a year ago, and approach double-digit figures by the end of 1995.
An increase in rates from 7 percent to 9 percent would add $209 to the monthly payment on a $150,000 mortgage.
As a result, Lereah foresees a "steadily downward trend in all major housing measures through 1995," he said in an interview on the eve of the Commerce Department report.
Many other analysts predict that housing will be flat to falling for the remainder of the year.
Mortgage rates averaged 8.51 percent in August, nearly 2 percentage points above their 25-year low of 6.74 percent last October, according to the Federal Home Loan Mortgage Corp. The average had risen to 8.66 percent during the week ended last Thursday.
But despite the higher rates, applications for building permits edged up 1 percent after a 1.6 percent gain in July. Permits often are a barometer of future activity.
Regionally, starts shot up 15.2 percent in the Northeast, to a 144,000 annual rate, and 14.8 percent in the South, to 675,000.
But they slumped 14 percent in the West, to a 308,000 annual rate, lowest since 278,000 in July 1993. And they fell 6.8 percent in the Midwest, to 315,000.