What Hath Greenspan Wrought?

The Commerce Department said Tuesday that builders began work on new homes at a seasonally adjusted annual rate of 1.60 million last month. The figures translate into an 11.2 percent drop, the steepest since a 17 percent decline posted in January 1994.

The March performance was much weaker than the 3.9 percent decline many analysts expected.

A survey of economists by CBS MarketWatch looked for new home construction starts to slow from an upwardly revised 1.8-million February clip, but only to 1.7 million in March.

Housing construction has been an engine of the booming economy and even with higher interest rates, activity has remained at healthy levels.

The Federal Reserve has boosted interest rates five times since June 30 to slow the speeding economy and to keep inflation under control. Given the outlook for strong continuing growth, many economists continue to believe the Fed will raise rates again May 16.

But some analysts said the central bank could defer such action if the stock market continues to slide. On Friday, both the Dow Jones and Nasdaq indexes, shaken in part by a government report showing a surge in consumer prices in March, posted their worst one-day point drops in Wall Street history. But on Monday, the Nasdaq posted a record one-day point gain and the Dow closed sharply higher.

An April survey of builders released by the National Association of Home Builders Monday indicates they remain less optimistic about current sales expectations for new single-family homes as well as sales six months from now. The culprits: higher mortgage rates and shortages of skilled labor and finished lots for development.

In March, the average interest rate on a 30-year fixed-rate mortgage was 8.24 percent compared with an average 7.04 percent for the same month last year.

All parts of the country reported a decrease in housing starts except for the South, where construction was unchanged.

Housing starts took the biggest dive in the Midwest, falling 31.9 percent to a seasonally adjusted annual rate of 320,000. In the Northeast, starts fell by 18 percent to a rate of 159,000. In the West, starts dropped by 4.5 percent to a rate of 379,000. Housing starts held steady at a rate of 746,000 in the South.

Starts of apartments, condos and other multifamily housing dropped by 41 percent to a rate of 295,000 in March, following a 30.5 percent rise the month before. But starts of single-family homes rose 0.2 percent to a rate of 1.30 million after a nearly 4 percent drop in February.

New building permits, a sign of future construction activity, declined by 4.5 percent in March to a seasonally adjusted annual rate of 1.58 million, following a 6.7 percent drop the month before.