Raising High the Roof Beams

The housing sector, which accounts for one-fifth of U.S. industrial output, was one of the first industries to collapse under the weight of the recession. Last year, following the building boom of the go-go 1980s, housing suffered its worst decline since World War II: new home starts plunged 15%, to 1 million units. But with falling interest rates and the lure of tax credits enticing consumers back into the market, the industry is showing surprising signs of rebirth.

As of February, sales of existing homes were running at an annual rate of 1.3 million units, up 9.3% in February and more than 100,000 units ahead of analysts' predictions for 1992. New housing starts, spurred by an unseasonably warm winter, are proceeding at a 1.3 million-unit annual pace, up 9.6% compared with last year and above the 1.1 million projected by analysts.

Housing experts attribute the upsurge largely to a sharp drop in 30-year fixed mortgage rates, which started plummeting last summer and dipped to an 8.43% monthly average in January, their lowest level in 18 years. The drop touched off a wave of refinancing, as 1.6 million homeowners last year took advantage of lower interest to roll over their mortgages. Although rates inched up slightly in February, another 3 million homeowners -- an all-time record -- are expected to refinance this year.

But most of the activity has been generated by home purchases. Prospective buyers accounted for more than two-thirds of all mortgage applications in March, compared with 27% in February. "There's a lot of pent-up demand out there," says Hugh Kelly, director of economic research at the New York City real estate firm Landauer Associates.

Demand was highest in the West, where home sales soared 18%. Most of this action, though, is taking place outside California, whose economy has been battered by a retreating defense industry. In the Northeast, housing sales rose only 2%, a sluggish performance due partly to the fact that home prices are up 2% to $143,000, second only to those in California. Sales in the South increased 9%. In the Midwest housing sales also jumped 9%, and new home construction climbed 39%. But Chicago Realtor Dempsey Travis says a sustained recovery will need more than "one-shot remedies" like the $5,000 tax credit President Bush has proposed for first-time home buyers. "We have to stimulate the underlying root of demand: job creation."