Harsh Winter, Quake Drag Down Housing Starts : Construction: Rate skids 17.6% in January, the steepest slide in a decade. Analysts call it a lull.

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Feb. 17, 1994 12 AM PT

From Associated Press

WASHINGTON — Home building took its steepest slide in a decade last month, dragged down by the harsh winter and the Northridge earthquake.

Analysts said residential construction will remain stuck this month because of lingering severe weather but will regain its footing as spring approaches.

Housing starts skidded 17.6% in January to a seasonally adjusted annual rate of 1.29 million units, the Commerce Department reported Wednesday.

The decline, which matched a similar drop in January, 1991, was the biggest since a 26.4% plunge in March, 1984.

“People just don’t like digging holes in the ground when it’s that cold,” said David Lereah, an economist with the Mortgage Bankers Assn.

“February will probably be down for weather-related reasons as well, but starts will bounce back,” predicted economist Robert R. Davis of Savings & Community Bankers of America. “It’s a temporary lull.”

Commerce Secretary Ronald H. Brown agreed, calling the decline “transient.”

He acknowledged that weather-related disruptions to overall economic activity suggest a slower first quarter than anticipated, but he maintained that “the economy’s underlying momentum remains intact.”

The West, including California, posted the only increase in residential construction, but it was considerably weaker than in December. Starts fell elsewhere.

Analysts noted that another reason for the decline, in addition to the weather and quake, was an upward revision in December starts, from a 1.54-million rate to 1.57 million--the highest since 1.62 million in January, 1989.

“Even without the earthquake and cold, we considered the December surge to be unsustainable . . . and were looking for a moderate fallback in the first quarter,” said economist David F. Seiders of the National Assn. of Home Builders.

Analysts predicted that residential construction will remain strong through 1994 but will level off at about the 1.46-million fourth-quarter rate. The Home Builders are forecasting 1.43 million starts this year, up from 1.29 million in 1993.

Although mortgage rates have inched up from their October lows, last week’s average of 7.21% was still well below the 8.07% of early January, 1993. Lereah predicted rates will still be below 8% at year’s end.

Applications for building permits--often a barometer of future activity--fell 7.9% in January, the first decline in seven months. Analysts said the drop also was weather-related.

Single-family starts dropped 15% to a 1.15 million rate.

Seiders said construction was merely delayed and that “the only question is how fast the postponed activity comes back.” The Home Builders are forecasting 1.23 million single-family starts this year, the most since 1.43 million foundations were laid in 1978.

Apartment construction plunged 33.8% to a 147,000 rate. But Seiders said that “we expect it erratically, but gradually, to move upward.”

Regionally, the West posted a 0.3% increase in overall starts to a 377,000 rate, much slower than the 17.9% surge in December.

“There’s no question the earthquake caused some starts to be delayed,” Seiders said.

Starts fell in the other regions, which were hit hard by winter weather.

They dropped 32.8% in the Northeast to a 90,000 annual rate, the lowest since an 85,000 rate in February, 1991. They had been down 2.2% in December.

They declined 22.9% in the Midwest to a 262,000 rate, after a 3.7% advance a month earlier. Starts also fell in the South by 21.6% to 565,000, wiping out a 15.9% gain the previous month.