The '83 housing boomlet: it may turn into a boom
Paul Volcker hit the nail on the head. Last week the chairman of the Federal Reserve Board told Congress, ''We're seeing a housing recovery even better than the housing experts expected.''
Michael Sumichrast, chief economist at the National Association of Home Builders, agrees: ''It is definitely stronger than I expected.'' Housing starts in the first quarter rose 82.1 percent over the first quarter of 1982, and housing sales were up 50 percent.
These huge gains for the quarter came even though the Commerce Department reported Monday that housing starts backed off slightly in March. This easing didn't bother Mr. Sumichrast, who noted, ''Traffic (through the model homes) is the heaviest since 1977, and builder expectations for future sales are extremely high.''
This improvement is definitely noticeable in California, where the housing industry, one of the largest segments of the local economy, is staging a rebound that has thousands of carpenters hitting nails on the head. In some instances, consumers are buying houses after just looking at maps and floor plans. This is the case at Security Owners Corporation, which reports 104 ''patio'' home reservations at its Hidden Lakes subdivision in Martinez, to the north.
According to Dennis O'Brien, president of the California Builders' Association, which represents the housing and light construction industry, housing starts were up ''very substantially'' in the first quarter. Mr. O'Brien is estimating that housing starts in the state will come in at 125,000 to 150, 000 for the year, up from 80,000 last year. He adds, however, that last year was the industry's worst since World War II. And even though 1983 will show a strong rebound, it will be short of a ''normal'' year, when 200,000 units are usually built.
Economists remain divided on whether or not the strength in housing will persist. Audrey H. Zaffuto, vice-president and economist at J.Henry Schroder Bank & Trust Company in New York, says, ''We now look for continued strength from housing throughout the year.'' But Jack Lavery, chief economist at Merrill Lynch & Co., says that ''in our opinion, the recent pace of housing activity is unlikely to be sustained in the months immediately ahead.''
Even though Mr. Lavery believes housing activity will cool off, he notes that savings flows remain quite positive at savings-and-loans; mortgage rates continue to fall; and consumer net worth is rising. These are all ingredients necessary to keep the housing market stimulated.
Should the recovery continue, it could have important implications. In California, for example, Mr. O'Brien figures that if housing starts were to return to the 200,000 annual level, the state's unemployment rate would eventually drop by 3 percent as the increased spending worked its way through the economy. It would also reduce the state's budget deficit by $750 million, as more Californians paid taxes.
In this state, Mr. O'Brien says, an important ingredient in the housing recovery is the ability of the state and local communities to issue tax-exempt bonds to provide mortgage money for first-time buyers. Some 20,000 California families received mortgages last year through such bonds. Because the state paid a lower interest rate on the bonds, consumers were able to borrow money at 2 to 3 percent below the market rate.
But the legislation that permitted states and local communities to issue such bonds will expire Dec. 31. There is strong pressure on Congress to extend the law. President Reagan is reported to be opposed to such an extension, preferring to let the private sector raise the funds.
Beyond a doubt, lower interest rates have been a stimulus to the housing surge. Long-term fixed FHA/VA (Federal Housing Administration, Veterans Administration) mortgage rates now stand at 12 percent, down from 17 percent a year ago. For the average home buyer purchasing a $90,000 home, this means a reduction of $285 a month in mortgage payments. According to Mr. O'Brien, this makes 810,000 more Californians eligible to buy new houses.
Builders are also trying to get the Legislature to change some of the regulations and restrictions placed on housing during the preceding state administration. Mr. O'Brien says energy-saving regulations have added $2,000 to taken seriously here, and housing executives admit it would be difficult to ease up on the laws.
Housing starts and permits (Millions of units at seasonally adjusted annual rates) Feb. Year Forecast 1983 to date 1983 Total starts 1.756 1.732 1.600 Single family 1.040 1.088 1.090 2-4 Families .140 .122 .110 5 + families .576 .522 .400 Total permits 1.493 1.486 Single family .825 .864 2-4 families .123 .864 5 + families .545 .500 Source: Citibank