Home construction suffers steep drop across the nation

Construction of new homes and apartments plunged by 17.6 percent in March, the biggest decline in 14 years and another possible indication that rising interest rates are beginning to take a toll on the economy.

Meanwhile, the cities of Cape Girardeau, Jackson and Scott City seemed to be bucking the national trend, with all three cities reporting an increase in construction of new single-family homes.

The Commerce Department reported earlier this week that builders started construction on new homes and apartments at a seasonally adjusted annual rate of 1.84 million units in March, down from 2.23 million units in February.

Analysts had been expecting a decline in housing, but the steepness of the drop, the biggest since January 1991, caught them by surprise.

"This is a bit of a shocker," said David Seiders, chief economist for the National Association of Home Builders. "But I don't think this represents a fundamental downshift in the housing market. There were special factors behind it."

Laying blame

Analysts blamed unusually wet weather in March, which hampered construction activity in some parts of the country, and seasonal adjustment factors that had inflated activity in the previous two months of unseasonably mild weather in many parts of the country.

But many analysts said they believe the housing report could be signaling a peak for the red-hot housing market, with declines expected in the months ahead as higher mortgage rates put a damper on an industry that has posted four straight years of record sales figures for both new and existing homes.

In Cape Girardeau, Robb McClary, the city's inspections services director, said 2004 was a record year and that this year has gotten off to a good start, too.

For the start of the fiscal year, from July 1, 2004 to Feb. 28, 2005, there were permits issued for 28 new homes. That's up from the same time last year, when there were 24 permits over the same time period.

"Those figures tell me that the residential growth in our community continues to be robust," he said.

In Jackson, building and planning superintendent Janet Sanders, reported that from January to April of 2005, there were 24 building permits for new single-family homes issued, compared to 20 over the same period in 2004.

Donna McGregor with the city of Scott City said there was only one new single-family home permit from January to April of 2004, but there are already three permits during the same period this year. She knows that one more permit is going to be requested soon, she said.

On the national front, analysts said all of these reports taken together imply the economy is losing some steam because of higher interest rates and the recent surge in energy prices.

The Labor Department said the 0.7 percent increase in its Producer Price Index, designed to track inflation pressures before they reach the consumer, was the largest gain in five months. It was led by a 3.3 percent increase in energy prices, reflecting soaring global oil prices that have sent gasoline costs soaring.

Business editor Scott Moyers contributed to this report.