Survey Draws Dim Housing Picture : Analysts Cite Fundamental Changes That Affect Industry

Many people are still making nearly intolerable sacrifices to buy a house. Builders and real estate sales people--their fingers crossed--are looking forward to another good year. But in a fundamental sense, analysts say, things will never be the same.

The major conclusions of housing industry analysts surveyed by United Press International are:

--”High” mortgage interest rates are not temporary but a permanent result of banking deregulation and the recent dynamic growth of the secondary mortgage market--the mechanism for recycling most mortgage money.

--The industry’s lobbyists, trying to preserve important tax advantages for housing, have united in a warning about the falling proportion of homeowners, but are several years too late.

--Builders, facing a revolt of buyers no longer satisfied with mediocre quality, are being forced to pay much closer attention to design, detail and the peculiarities and diversity of living styles in order to survive.

--Buyers are drying up in the Sun Belt as the South and West try to emerge from a painful oil-industry crisis of plenty. Houston builders can be found working in Chicago.

Hollow Monuments

--Misbegotten new tax breaks and the threat that some of the old ones will be taken away have left thousands of hollow monuments--from vacant office buildings to unwanted apartment buildings, rejected condominiums and time-sharing resort units--wasted housing that will never be sold for the same billions they cost to build.

--The American housing industry is leaving the exuberance of youth, now that so many dwelling units are in existence, and entering the mature years more typical of European countries. Year-round rehabilitation, not springtime building and buying surges, are the future.

--Although agricultural land values have depreciated, living space in and around cities and towns has never been more expensive. Space, inside and out, becomes the first amenity to be sacrificed by developers and their customers.

--The ominous threat of a catastrophic collapse of housing demand remains very much alive. A higher unemployment rate later this year, a rapid decline in the foreign exchange value of the dollar, which some analysts say is already under way, or a failure of Congress to diminish government borrowing are among the possible triggers.

Threats More Credible

The sudden slowdown in the growth of the gross national product to an annual rate of only 1.3% in the first quarter made those threats far more credible.

Mrs. Charles Bunch looks out one window of her Anchorage, Alaska, home and sees the boats in Cook Inlet. Through another window are the mountains. “On a clear day you can see the tip of Mt. McKinley,” she says.

The Bunch family, with three children, is moving to Washington, D.C., but selling and buying houses are challenges they do not plan to scale.

In Anchorage, the housing “supply is starting to meet demand,” she says. Sellers find the sales are less automatic and more costly.

In Washington, too, it seems. There, the Bunch’s real estate agent, Betty Randall, says she has never seen more houses being purchased. The northern Virginia firm she just left, just had its best month.

Caution by Sellers

But she has also never seen such caution, with sellers putting their homes on the market months earlier than the planned move, and putting up with the inconvenience of showing it to buyers on Christmas, Thanksgiving and Easter.

“They just want to make sure they sell their homes,” she says.

The intuition of the marketplace is responding to a variety of new circumstances. After decades of being a sanctuary of sorts from market risk, although suffering from periodic bouts of credit starvation, the tables have turned.

Now the risks are many but the supply of credit has become stabilized at expensive levels.

Buyers and sellers still have to contend with leaky basements. But also with the possibility of drastic tax reform that will change the nature of their holdings, of an economy that keeps the best analysts on the edge of their seats, and of new shifts in the makeup of the buying and selling population.

The old formulas, quaint in their simplicity, get less useful every day.

Underpinnings Changed

With hardly any public discussion, the economic underpinnings of the housing industry changed radically in the last five years.

Little did homeowners and potential buyers know that money market mutual funds were the death knell for those 9% mortgages and perhaps others in the 10% range as well, analysts say.

Buyers can keep waiting for what used to be an inevitable downward cycle, but it will not happen, says New Orleans consultant John Hebert.

“The minute you let the average Joe get 8% or 9% on his money, that was the beginning of the end,” he said.

Wall Street’s yields for the common man soon had to be extended to banks and savings and loans. That meant savings and loans also needed higher income. The grateful saver found that credit cost more even after the inflation rate slowed.

At the same time, mortgages were becoming far more popular for the biggest investors. The low-profile “secondary market” that bundles mortgages, exploded in the last five years. Once a shelter from the money market storm, mortgages became big-time chips on the table.

Too Much Investment

And the philosophy of the regulators came to reflect more of former Budget Director David Stockman’s conviction that the nation has tied up too much money in residential housing to the disadvantage of investment-starved economic sectors like manufacturing.

As rates stayed stubbornly high it became clear homeownership’s favored position on the nation’s investment priority list was being jeopardized.

The result may be more efficient use of money, Hebert says. But also, “It’s never going to go back down to the good old days,” when savings and loans harvested cheap money and passed it on to the housing industry. “Home mortgage money is simply going to compete with all other money.”

American lumber companies kiln-dry their product to leave more moisture in the wood--and the inevitability of greater shrinkage and distortion--than do processors in many countries famous for quality, like Sweden and Japan.

Consumer Complaints

Energy-saving and cost-saving innovations are hot; those that deal with safety, health and beauty are not.

The vast number of complaints from the growing cadres of consumer groups are an attempt to do for the housing industry what imports did for auto executives--force them to meet the demand for something better.

One of the industry’s biggest trade groups demonstrated the challenge for such groups by recently erecting in Washington a display structure to show all the “unnecessary” requirements contained in many building codes. Among the “unnecessaries” was a new safety electrical outlet that shuts down before faulty appliances can electrocute the user.

When described by the industry at all, the demand for better products is glossed over as an “upscale move” by affluent yuppies looking for gadgets and more woodwork.

Although many major cities still seem to be nice places to visit, if they ever finish them, the end of an era is at hand, according to the National Assn. of Home Builders’ chief economist.

Toward Preservation

Michael Sumichrast says that societal incentives are changing, not only in the United States but in many industrialized nations, to “preserve existing inventories.”

Translated that means: “We are moving from the disposable society to something permanent,” he says. Further, families as well as large developers are tending more to “preserve wealth” by becoming less mobile and more apt to switch their dollars into rehabilitation, not new construction.

The tax breaks and the chance that they might disappear have been responsible for one last giant gasp of unnecessary construction nationwide, the figures suggest. But now “the ordinary person has to think twice before making a commitment to move.” Far from trivial, the ramifications of that development are tremendous, Sumichrast says.

The “American Dream” of a single detached house on a lot that is so often memorialized by its beneficiaries, the builders and suppliers who make it come true, is yielding somewhat to new practicalities.

The construction projects drawing the most interest are no longer subdivisions but planned service-saturated communities for the fastest growing part of the population, the elderly.

False Alternative

Judging by the number that cannot be sold, condominiums represented a false alternative for home buyers. But there are signs that low-maintenance living, properly planned to insulate people from their neighbors, remains a new addition to the “dream.”

What is happening is “evolution,” definitely,” according to Chicago economist Michael Wilson of the U.S. League of Savings Institutions.

The “dream” is being repriced, reconfigured and then embraced anew. “Singles are not as great a percentage (of housing starts) as they were 10 years ago,” Wilson says.

“Homeowners will go to all lengths to make their home payment, passing up a car payment or whatever,” he says. That furious determination means there will always be some sort of an “American Dream.” But no longer can anyone take for granted exactly what it will be.