Will Homebuilding Surge Falter?
REALTORS and home builders worry that, without a federal tax incentive, the surge in the housing market during January and February will falter. They expect March housing statistics to be released this week and next to confirm their concern.
Early in the year, mild weather and low interest rates ignited demand for housing that had been pent up by the United States recession. Sales and new construction exploded.
In Charlotte, N.C., the number of building permits issued rose 46 percent in January and 57 percent in February over year-earlier levels. But speculative construction is rare. "Nobody wants to be hanging out on a limb unless they know [a house] will be sold," says James Patterson of the Home Builders Association of Charlotte.
In dormant Lowell, Mass., "SOLD" is being tacked over "FOR SALE" on two-year-old yard signs. But "the prices are lower than a lot of people had hoped," says Lowell realtor Howard Sager. He recently brokered the sale of a 150-year-old, four-bedroom colonial for $74,000 that he says would have fetched $120,000 five years ago.
In Antioch, Calif., a San Francisco satellite town, prices are down 10 percent from 1989, when "people would camp out for one to three nights to be in line to buy one of our houses," says Richard Baker, who was then with Pulte Home Corporation.
Today Mr. Baker works for Greystone Homes, a company started by Wall Street investment banker Warburg Pincus. Greystone is not building now, but is acquiring California land cheaply in expectation of a stronger market five years out.
It's 1992 that concerns most of the real estate industry. Last year was the slowest for home construction since 1946. "We're an industry that still has 750,000 people unemployed," says Robert Buchert, president of the National Association of Home Builders (NAHB). That gives real estate an unemployment rate of 17 percent, the highest for any industry, Mr. Buchert notes. And real estate accounts for 40 percent of the nation's unemployment overall, adds Dorcas Helfant, president of the National Association of Realtors (NAR).
`WHAT we're hearing from builders around the country right now is - March was neither January nor February. They're not seeing people in their model homes," Buchert says. March housing starts will be announced by the Commerce Department on Friday and sales of new homes on April 24. He expects both numbers to show a decline.
The NAR will announce sales of existing homes on April 22. At best, Ms. Helfant looks for no increase over February. She and Buchert blame a rise in interest rates and uncertainty over the tax credit proposed by President Bush in his State of the Union address. The credit would let first-time buyers subtract up to $5,000 from their income tax bill, depending on the price of the house.
"We view the $5,000 tax credit as an ideal down payment vehicle," Helfant says. Lack of money is keeping first-time buyers out of the market, she says.
"If it's passed, it will be great for me," says Monique Stogner, an accountant who closed on a house in Austin this month. But she doubts that the Democrat-controlled House of Representatives will pass the credit for a Republican president in a presidential election year.
In fact, Congress did delete the tax credit from economic recovery legislation that Mr. Bush vetoed anyway. "The whole thing went up in smoke," says NAHB spokesman Jay Shackford. Build-ers and realtors are lobbying hard to have the credit included this June in either a bill to extend unemployment benefits or one to extend mortgage revenue bonds and low-income housing tax credits.
Even coming as late as June, the NAHB believes, the credit would cause sales of 215,000 new homes this year, put 400,000 people back to work, and pump $22 billion into the economy.
Only the home building industry, 85 percent of whose members build fewer than 25 homes in a year, could mobilize that quickly, Buchert says. Even if highway projects are speeded up, as has been proposed, so much preliminary work is needed that concrete won't be poured for two to three years, he says.
The downside is the cost to the treasury. Buchert figures the cost could reach $6 billion.