With predictions for a cautious third-quarter housing recovery, real estate agents are passing their hands across their foreheads in relief. "It was tough for a while," said one New York agent. "We are holdinf on with our finfernails. Business still isn't great, but we think it will improve."
Lou Dombrowski, an official at the National Association of Realtors, says 1.7 percent of the total membership dropped out -- a decline directly attributed to the September-to-May housing slump. Sales of existing homes plunged 33 percent, from a high of 3.9 million to a low of 2.3 million. New homes dropped from a high of 819,000 in 1977 to a low annual rate of 446,000 in May 1980.
Last October, credit restraint was tightened in an effort to combat inflation. From that time until April, when interest rates began to drop, the number of people buying homes rate of 446,000 in May 1980.
Last October, credit restraint was tightened in an effort to combat inflation. From that time until April, when interest rates began to drop, the number of people buying homes steadily declined.
Real estate brokers are independent contractors who make their money from percentage commissions on each sale. Some, unable to survive on their reduced commissions, were forced to find ways to supplement their income or look for a whole new occupation. The National Association of Realtors estimates that an agent who was making $20,000 annually was reduced to a salary of $13,000.
Many say the picture is brightening, however. Multi-List/Mc Graw Hill is predicting a recovery in 1981 at 3.3 million sales, rising in 1982 to 3.9 million, the former peak, set in 1978.
According to Dr. Phillip Kidd, director of economic research for Multi-List/McGraw Hill, housing needs a combination of favorable demographics and credit availability.
Currently, the demographics are just right. "The housing market could be at its peak right now, were it not for the high credit levels which discouraged so many buyers in the past few months," Dr. Kidd says. "Now the market is trying to catch up. The largest number of first home buyers are in the 30-to- 44 age bracket. And this group is quickly becoming the largest population concentration. These buyers were picked out by severe credit conditions."
In most areas of the country, interest rates are at their lowest now since they began to climb in October 1979. And, real estate brokers argue, the market should be on the rebound.
"It was not a lack of demand that struck housing, but the unavailability of financing or availability only at high interest rates," Henry C. Wallich, a governor of the Federal Reserve System, said in a recent speech.
He added: " . . . the wealth of the American people incresingly has come to consist of their homes. People today are willing to devote much higher fraction of their income to homeownership than in the past. For nearly 46 percent of home buyers in 1979, housing expense exceeded 25 percent of their income, compared with only 38 percent in 1977."
Economists at Manufacturers Hanover National Bank in New York comment at their weekly publication, the financial Digest: "Despite the recent surge in housing starts, consumers lack confidence in housing starts, conditions. Most simply do not believe now is the time to buy."
They reason that consumers are anticipating mortgage rate and home price reductions.
Also, because of inflation, the money that consumers have available to spend on housing is sparse. Therefore, the recovery will be limited by "less-than-buoyant demand conditions."
According to the Dodge/Sweet Construction Outlook, housing construction fell one- third in the first months of 1980. Despite some recovery in the third quarter, contracts are still down 17 percent.
Robb Authier, director of public relations for the Massachusetts Association of Realtors, says: "We thought when the market started to improve, recovery would be rapid. But so far, progress has been slow."
Mr. Authier believes people are hesitating, hoping credit rates will go back down to 8 percent, from around 11 percent today. "We don't think banks will ever return to single- digit credit. Hopefully, people will begin to understand that and buy now while the prices of houses are rising at a rate lower than national inflation rates."
The cost of newly constructed homes has been increasing at 9 percent a year. Inflation has been running at a 12 percent annual year.
Most sources hold there is a good chance mortgage costs will go back up. For instance, Jack Carlson, vice-president and chief economist for the National Association of Realtors, says interest rates are their lowest level and may go by the end of 1980 or early 1981. On the West Coast, several banks are edging home-mortgage interest rates up to 12.5 percent.
The real estate market has some regional differences. For example, the housing crunch was particularly severe in the North Central area of the US. The Sunbelt states suffered little from the drought in housing sales.
Some "good reputation" areas never felt the crunch in the first place. Rita Russian, a sales broker for the Needham, Mass., firm of A. Clinton Brroks & Co., says unabashedly, "Business has never been better. We're averaging a house a day."
Mrs. Russian explains that business is "very regional," and Needham has low taxes, proximity to Boston, low turnover, and "a good reputation."
"In all honesty," she says, "I do hear other brokers complain -- especially in the areas farther out of Boston where taxes are higher and commuting costlier -- but we've never had a better year."