ECONOMIC

August was followed by a 20 percent increase in September, bringing theseasonally adjusted annual rate to 1.84 million units. Total starts thenremained strong in the last months of the year.Starts of multifamily dwelling units were important in the acceleration ofstarts in 1976. Rental vacancy rates fell from above 6 percent late in 1975and remained about 5/ 2 percent during most of 1976. A strong rise in multifamilyrental absorption rates was also indicative of stronger demand forrental housing.Federal assistance programs also encouraged housing construction. InJanuary, $3 billion in Government National Mortgage Association 7 l /i percentcommitment funds was released, with an additional $2 billion in September,and by the second half of the year the subsidized leasing programauthorized by section 8 of the Housing and Urban Development Act beganto affect the building of new multifamily units. By the end of the year it wasestimated that approximately 40,000 apartment units had been started underthe section 8 program, though the incremental impact on housing constructionis smaller in that some of these units would have been constructedwithout the program.Financial developments were favorable to housing in 1976, especially inthe second half of the year. Interest rates in the short-term money marketsdid not increase in the way that many had anticipated and in fact theydeclined in the latter part of the year. By the end of the year market interestrates were below rates on time deposits of similar maturities at financial intermediaries.This situation encouraged continued savings flows into thrift institutionsand made funds for home mortgages readily available. In addition,the continued fall in all long-term interest rates in the second half ofthe year reduced mortgage interest rates. The Federal Housing Administrationseries on new-home mortgages in the secondary market fell from9.41 percent in December 1975 to 8.45 percent last December but had aneligible impact on mortgage rates in the primary market in 1976.GOVERNMENT PURCHASESTotal government purchases in real terms rose by 1.3 percent in 1976,less than in 1975 and below the rate forecast at the beginning of last year.Real Federal purchases grew by 1.0 percent for the year. (A detailed discussionof Federal spending is presented elsewhere in this chapter.) Realpurchases of goods and services by State and local governments rose by only1.4 percent in 1976, the lowest real growth since 1951.There has been a downward trend in rates of growth of real State andlocal government purchases since the late 1960s, partly because the steadyslowing of population growth has reduced the demand for additional services.The deceleration of spending appears to have been sharpened in 1976by a delayed reaction to the 1974-75 recession and ensuing financial difficultiesexperienced by some States and local units. The widely publicized63