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A good spirit.

As the year begins, starts are up, the homeownership rate is rising, and mortgage rates are down.

Housing starts were up in January in all regions of the country except the South. This was a surprise considering the weather conditions on the East Coast and the fact that economic growth is faltering.

Recent Federal Reserve Board actions have helped housing maintain demand. Fixed-rate mortgages fell from approximately 7.25 percent in early December to 7.00 percent in January, while the initial rate for one-year ARMs fell from 5.60 percent to 5.40 percent.

(Total numbers for 1995 were also released: the year ended with 1.350 million units started, 1.073 million of them single-family. That's 7 percent below 1994 numbers, but still a very healthy year.)

Single-family. Revised data for the past three years show that the drop in single-family starts in the first half of 1995 was less severe than thought, and the increase during the second half of the year was stronger than originally reported. That brings the starting point for 1996 to a higher level, despite the fact that fourth-quarter 1995 starts were lower than those of the third quarter.

Not all of the data are good. While the starts data indicate a stabilizing market, the sales numbers show some weakness. New-home sales peaked in July at 781,000 units. They declined in the following four months through November (the latest month for which data are available).

While sales have slowed, starts haven't slowed in proportion. As a result, the inventory. of unsold homes rose from 5.5 months in July to 7.2 in November, reaching the highest level since the late 1980s. The inventory problem is most acute in the Northeast, where inventories are approaching the highest levels in a decade.

If recent rate declines don't cause sales to pick up, we may see some builders adjusting inventory levels again. The January single-family permits data show they may already be doing so: Single-family permits nationwide were down almost 6 percent.

Multifamily. Multifamily starts jumped sharply in January, following a steep decline in December. This continues the roller-coaster pattern of the past year: Starts increase sharply one month only to be followed by a sharp decrease the next. The increase to 314,000 units in January does not bring this sector back to its November level. Most of the swing is due to variations in the number of buildings of five or more units.

While the trend in multifamily building has been up, last year's gains were far less impressive than those of 1994. This fact is mainly due to the low-income housing tax credit, which caused production to jump in 1994. With today's high vacancy rates, the incentive to build more unsubsidized units is reduced.

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Title Annotation:Vital Signs; economic outlook for housing in the beginning of 1996
Article Type:Industry Overview
Date:Mar 1, 1996
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