Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, May 17, 1990                   TAG: 9005170108
SECTION: BUSINESS                    PAGE: B-9   EDITION: METRO  
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

HOUSING STARTS DECLINE

Interest rates remained high and the availability of construction money fell, and analysts said the tight money situation was increasing housing costs and causing unemployment.

"The [lending] spigot has been turned off," said Martin Perlman, president of the National Association of Home Builders. "The result will be higher housing costs."

Perlman said the Home Builders had dropped their 1990 forecast from 1.42 million starts to 1.28 million, which would mean a loss of 200,000 jobs in the housing industry.

The Commerce Department said starts of new homes and apartments fell 5.8 percent in April to a seasonally adjusted annual rate of 1.25 million units, the smallest number since an annual rate of 1.17 million units in the recession month of October 1982.

Applications for building permits - often a barometer of future housing activity - were down 8.7 percent to an annual rate of 1.13 million, the lowest level since 1.05 million were sought in September 1982.

Analysts attributed the situation to high interest rates and a credit crunch caused by the savings and loan bailout law and tighter lending policies by commercial banks.

"That certainly must have given home builders a lot to think about before going out and starting new units," said Richard Peach, an economist with the Mortgage Bankers Association.

Mark Obrinsky, an economist with the Federal National Mortgage Association, said new home sales had been hurt by rising mortgage rates.

But he noted that mortgage rates usually follow the pattern of long-term bond rates, which have been declining for several weeks.

"So my best guess is we'll see some modest declines in mortgage rates over the remainder of the year," he said.

John Tuccillo, chief economist with the National Association of Realtors, said the S&L bailout law was contributing to the credit crunch by reducing the amount of money that can be loaned to a single builder.

"This factor, coupled with the credit crunch being experienced across the country, particularly in the Northeast, has had a biting effect on housing starts," he said.

Perlman said a survey of 6,000 builders indicated that 60 percent of those responding were cutting back plans for future housing, laying off employees and, in some cases, "just calling it quits."

After jumping 23.2 percent in January, the warmest January on record, housing starts have declined for three straight months - 5.8 percent in April, 11.2 percent in March and 5.1 percent in February.

Single-family starts in April fell 7.5 percent to an annual rate of 934,000 units, the lowest level since a 931,000-unit rate in December, the fourth coldest December on record. Single-family starts had fallen 12.5 percent in March.

Apartment construction was unchanged at 311,000 units after falling 6.9 percent in March.

The only gain in starts was in the Midwest, where they were up 3.8 percent to an annual rate of 298,000 units.

Starts in the South dropped 8.7 percent, to an annual rate of 480,000. They were down 8.1 percent, to 340,000 units, in the West and 8 percent, to 127,000 units, in the Northeast.

The building activity means the pace during the first four months of 1990 was 4 percent below that of the same period of 1989.