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- BUSINESS, Page 49Raising High the Roof Beams
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- 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.
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- 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.
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- 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.
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- 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.
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- 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."
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