Data on new housing shows drop, but it's too soon to see trend
Edward C. Hill Jr. jokes to customers that he is more than doubling the number of $69,900 townhouses he is building this year so he can go fishing in 1985, when mortgage rates are expected to peak.
''Fishing is just a sideline,'' says Mr. Hill, president of Hillside Builders Inc. of Newburyport, Mass., who admits that the firm will do some building next year.
''But as of Dec. 31, 1984, I would like to plan it so financially I will be able to stop and take a wait-and-see attitude (toward building) and not get caught with 12 to 14 houses'' waiting to be sold, he says in a telephone interview.
Like Hill, an increasing number of builders are concerned about the outlook for their industry, which plays an important role in the economy. It provides jobs in the building-materials, home-furnishings, and appliance industries, among others.
One sign of the growing caution: Construction began on 27 percent fewer homes in March, compared with the previous month. The decline, from a seasonally adjusted 2.23 million-unit annual rate in February to a 1.64 million-unit rate in March, was the sharpest drop since the government began keeping records on housing starts in World War II.
Some analysts say the March drop overstates the slowdown in building activity.
''Certainly housing has slowed down, but it is not a slowdown of major proportions,'' says David Berson, an economist at Wharton Econometric Forecasting Associates. He notes that unusually good building weather in February and unusually bad weather in March may have overstated the drop in the seasonally adjusted numbers.
But construction activity is clearly slowing, as pent-up demand for homes diminishes and mortgage rates begin to rise.
At the beginning of the year, builders rushed to start homes, and buyers were eager to buy, as both raced to beat the threat of rising interest rates. Demand was also boosted, especially in the Sunbelt, by the return of buyers who had been shut out of the market as a result of the recession. The amount of this pent-up demand now has been reduced, analysts add.
''There is still a steady flow of people buying, but there is no question that those who wanted to beat (high rates) have beaten them. Now sales are slowing down,'' says David Hill, president of the Home Builders Association of Greater Chicago and chief executive of his own construction firm. At best, he says, he expects housing starts in the Chicago area to equal 1983's level of 22, 000.
Nationwide, housing starts are expected to slow as the year progresses. Michael Sumichrast, chief economist at the National Association of Home Builders , says he expects starts of 1.84 million for 1984 as a whole. But the pace will decline steadily, from February's 2.23 million annual rate to 1.72 million for the fourth quarter of 1984, he says. In 1983, starts ran at a 1.7 million pace, well below the 2 million starts recorded in 1978.
Realtors say demand for existing homes has peaked for the year. ''We are already seeing a plateauing of sales numbers,'' says Kenneth Kerin, a vice-president of the National Association of Realtors. ''There will be a flattening through the the middle of the year and then a deterioration in the wake of high (mortgage) rates.''
For the year as a whole, some 2.97 million single-family homes will be sold, he says, up from the 2.72 million sold in 1983. Sales in 1985 are expected to drop to about 2.5 million, due to rising mortgage rates.
Interest-rate forecasting is far from precise. But Home Builders economist Sumichrast says he expects interest on fixed-rate loans with 20 percent down payments to rise from their current 13.9 percent level to 14.60 percent by the end of 1984 and to 15.75 percent by the end of '85.
''The second quarter is the last window of opportunity for decent (fixed-rate) mortgages,'' says James Christian, chief economist of the US League of Savings Associations.
Adjustable-rate mortages are expected to continue to carry rates 1.5 to 2 percentage points lower than fixed-rate loans. In some cases such loans have been offered with a bigger discount, but usually this is because a builder has paid the bank to offer a lower rate.