Housing: Foundation for U.S. Economy

Now nearing the end of its third consecutive ebullient--but less than booming--year, the nation’s new housing industry continues to provide a potent foundation for the nation’s total economy.

Despite a recent downturn in sales and starts, this year’s total of new starts is expected to exceed 1.7 million. And a recent conference of housing and finance analysts showed a consensus that starts will falter only slightly next year and that mortgage rates are likely to remain stable with only minium fluctuation.

If this housing scenario plays out, it could produce the kind of a stable housing climate that experts have been prescribing as the best thing that could happen to the residential industry and to the national economy. Widely respected economist Leonard Santow opined that “there is no technical reason why this (strong) economy has to die in the next 12 to 18 months.”

Conservative Forecast

Even the often pessimistic economics department of the National Assn. of Home Builders continues to make its forecast on the conservative side, seeing 1986 starts to be in the 1.58-million level as the result of a lessened demand from first-time buyers. Therefore, NAHB members--usually far more optimistic than their trade association gurus--are being advised to cut back their production plans 15% to 25% for next year, mainly because of rising inventories of unsold houses (both new and existing), higher foreclosure and delinquency rates, a troubled national budget situation and all the tax reform uncertainties.

But there’s also a bright side. Even veteran chief NAHB economist Michael Sumichrast, who will be retiring early in 1986, blinked at the housing sunshine hitting most of the nation this year and admitted that his year-ago prediction on 1985 starts missed the target on the down side. “Housing is doing considerably better than we expected,” he said.

Agree With Sumichrast

Area home builders, most of whom are enjoying outstanding sales and production levels, agreed with Sumichrast’s prognosis and cited:

--An upsurge in the issuance of tax-exempt revenue bonds by states wishing to encourage ownership for low-income households and also the creation of new rental apartments for households unable to become purchasers.

--A substantial downturn in mortgage rates that has spurred long-time homeowners to sell and move up to new, more expensive houses.

--Fears of another bout of inflation and the recognition by many Americans that owning a single house is still the prime hedge against inflation--far better than investments in land, mutual funds, stocks, gold and condo apartments.

Changes in VA Loans

Meanwhile, on Capitol Hill, Sen. Frank Murkowski (R-Alaska), chairman of the Senate Veterans Affairs Committee, has introduced a bill that would raise the VA guaranty amount from $27,500 to $32,500 and also establish a new VA underwriting system whereby the VA administrator would set a standard debt-to-income ratio to be followed in all VA underwriting offices.

Now the VA uses a method by which it approves the loan if the veteran meets the “residual” income factor for family size and local living expenses. In this case, “residual” means the amount of money a family has after meeting housing and other outside debt obligations each month.

The Murkowski bill also would take a step to prevent delinquencies and foreclosures by making a lender liable for a civil penalty if that lender intentionally makes a loan to a veteran while knowing (i.e., having facts on file) that the veteran did not meet underwriting standards set by the VA.

Murkowski’s bill also would take VA out of the business of selecting appraisers to set values on mortgages to be guaranteed. The VA opposes that change but the powerful Mortgage Bankers Assn. suggested that the VA, at least, could produce a list of acceptable appraisers and then permit lenders to choose from that list--instead of having appraisers assigned by VA offices.