We all know by now that, economically speaking, 1995 was slower than 1994. And, the housing construction data sheds some light on this situation. Altogether, in 1995 there were 1,312,600 housing units constructed. This was down from 1,346,900 in 1994. Comparing the figures for single-family structures and multiple-occupancy buildings, we find that from 1994 to 1995, single-family home completions dropped from 1,160,300 to 1,065,500 (down 94,800). At the same time duplex and apartment construction increased from 186,500 units to 247,000 (up 60,000). So, slowing economic activity resulted in fewer housing units being constructed and a movement away from single-family homes and toward multiple-occupancy units. It seems that, in 1995, builders attempted to adjust their activities to match their perceptions of consumer demand. And, that perception was that fewer consumers were willing or able to commit to the purchase of a home.

Now, let's look at what has happened thus far in 1996. During the first four months of 1996, the number of total units constructed was almost identical to the number for the same period in 1995, 394,000 versus 392,900. But, the number of single-family units fell from 327,900 to 315,600 (down 12,300) while the multi-unit number increased from 65,000 to 79,000 (up 14,000). Based on these figures it looks like builders perceived that consumers were going to remain somewhat cautious about buying homes. But, the builders were not counting on the effect of -- of all things -- rising interest rates.

Back around March, when long-term interest rates began to tick up, a lot of potential home buyers decided they'd better act fast before rates went any higher. In March The National Association of Home Builders' Housing Market Index (HMI), led by its current-sales sub-index, jumped a record 10 points from 50 to 60. The most-recent (May) reading of the HMI was 63, and the current-sales sub-index was still going strong. This compares with an HMI reading of just 42 for the same period in 1995. So, it looks like builders must adjust their perception of the demand for homes, and maybe we will see a pickup in single-family home construction in the months to come.

Byline: Lafferty (MF Merlin)