Construction of single-family homes is slowing throughout the country, even in regions with robust economies.
That's the word from U.S. Housing Markets, published by Lomas Mortgage USA. In its latest quarterly report of national, regional, and local housing markets, it says the Federal Reserve Board's "persistent pressure on interest rates has throttled demand."
But the publication added: "While single-family builders are hurt by higher rates, costlier mortgages generate more renters. So U.S. apartment builders now have more crews on more jobs than at anytime in the last four years."
"This year's mortgage rate run-up has been nothing short of astonishing," said Lomas president Gary H. Kell. "It has surpassed even the explosion in rates which preceded Wall Street's awful cataclysm seven years ago."
He said the average fixed-rate loan jumped from about 9.3% in January 1987 to 11% by October. But, he added, "the escalation in 1994 has been greater, and we expect to see rates climb even higher in coming months."
"Underlying demand for new homes has been stifled, particularly in what had been a robust entry-level sector," Mr. Kell said.
"Entry-level buyers provided a strong underpinning for residential construction's recovery and growth during the past three years. But the steep jump in rates has closed the door on many young renters who had planned to buy."
There was some relief, however, "A broad selection of adjustable-rate loans has lessened somewhat the impact of the surge in fixed rates," Mr. Kell said in his written analysis.
"Adjustables have kept many would-be homebuyers within the underwriting parameters necessary to qualify for loans."
While single-family permits obtained by builders inched up by 2% in the third quarter, multifamily permits surged by 59%, reaching 220,000 new units and surpassing the 1993 full-year total.
The Lomas report pointed to key signs of economic strength across the nation. The number of people on U.S. payrolls, it said, grew by about 2% in the last four quarters, or about 2.3 million. Every section of the country participated in job growth, including the Pacific Region.
Four big California metro areas were the only large markets to show a job loss in the period, the Lomas report said. They are Los Angeles, San Diego, Orange County, and San Francisco.
But residential construction may have already turned the corner and started upward, Lomas said. Single-family and multifamily permits were both higher in the third quarter than in the quarter earlier.
In a separate report, TRW Redi Data said that while mortgage foreclosures will set another record this year, the growth rate appears to be slackening. The 13% growth will be the slowest since 1990. In 1991, foreclosures surged by more than 100% statewide.
"Atlanta remained the nation's housing volume leader, with more than 30,000 new units authorized in the first three quarters," the Lomas announcement said. "Chicago was next with almost 29,000 units permitted."
Florida proved to be the No. 1 state in construction activity with 106,000 permits issued, far ahead of the 76,000 in California and 74,000 in Texas.
"Las Vegas easily remained No. 1 on the Market Hotness list," the announcement said. "In the past four quarters, Las Vegas builders pulled nearly 25 permits per 1,000 population. Next on the list was Fort Myers-Cape Coral in Florida."
In the Detroit area, single-family builders are having their best year since Jimmy Carter left office, Lomas said.
"This year's surge in housing demand in the 10-county Detroit market has surpassed all expectations. The local builders' association's 1994 projection was beaten before the third quarter ended."
In other hot areas, Miami-Fort Lauderdale had big payroll growth, and builders were more than one-third ahead of their 1993 pace.
The third quarter was exceptional, with single-family permits climbing by 22% and multifamily permits nearly six times the number a year earlier.
Hottest Housing Markets
Index of building permits per 1,000 populationLas Vegas 24.6Ft. Myers-Cape Coral, Fla. 15.5Raleigh-Durham, N.C. 14.2Phoenix-Mesa 14.1Orlando 12.3Tucson, Ariz. 11.9Atlanta 11.6West Palm Beach, Fla. 10.8Austin, Tex. 10.6Charlotte, N.C. 10.1Space Coast, Fla. 9.5Portland, Ore. 9.4Nashville 9.3Albuquerque 9.3
Source: Lomas Mortgage USA