Housing has solid year despite recession

WASHINGTON -- Construction of new homes and apartments fell slightly in December but managed a solid 2.2 percent increase for all of last year, an amazing achievement considering that housing is usually one of the industries that is hardest hit during a recession.

Meanwhile, other reports Thursday showed that new claims for unemployment benefits fell last week to the lowest level since last July, and a closely watched gauge of regional manufacturing activity put out by the Federal Reserve Bank of Philadelphia posted its first increase in more than a year.

Analysts said the new data provided hope that the country's first recession in a decade appears to be close to an end.

The Commerce Department's housing report showed that construction of new homes and apartments fell 3.4 percent in December to a seasonally adjusted annual rate of 1.57 million units. In November, construction starts had risen 7 percent, helped by mild weather.

Even with the December decline, housing construction for all of 2001 rose by a solid 2.2 percent to 1.60 million units, the third-best performance in the last 15 years despite the fact that the country endured a recession and the Sept. 11 terrorist attacks.

"A recession, a terrorist attack and massive layoffs apparently made people decide that there was no place like a new home," said Joel Naroff, head of Naroff Economic Advisors.

Analysts said the good performance of housing and consumer spending in general pointed to the unusual nature of this downturn. Often, recessions are triggered by cutbacks in consumer spending caused by high interest rates engineered by the Federal Reserve to battle inflation.

This downturn was brought on by sharp cutbacks in business investment, primarily in high-tech industries.

"This looks more like a 1950s style recession with low inflation," said David Wyss, chief economist at Standard & Poor's Co. in New York. "The Fed had the room to cut rates quickly to bolster consumer spending because it didn't have to worry about fighting high inflation."

David Seiders, chief economist of the National Association of Home Builders, said his monthly surveys of builders' expectations pointed to another solid year for housing in 2002, helped by mortgage rates that will remain near theirs lows of last year even as the economy mounts a recovery.

He predicted construction starts will hold steady at around 1.6 million, matching last year's performance. He said one good sign the year is starting off well was a 3.6 percent gain in applications for new building permits, which pushed them to their highest level in 10 months.

"Considering everything that has happened, the performance of the housing sector has been nothing short of phenomenal," Seiders said.

Freddie Mac's nationwide survey of mortgage rates showed that 30-year fixed rates fell below 7 percent this week, dipping to 6.83 percent, the lowest level since November.

The Labor Department said Thursday that the number of Americans filing first-time claims for unemployment benefits fell by 14,000 last week to a seasonally adjusted total of 384,000, the lowest level since last July.