Housing Starts May Be in Stable Mode
Graphed and otherwise illustrated national housing-start statistics tend to resemble the up-and-down movements of a roller-coaster.
However, the housing starts of four recent years indicate that residential construction may be at long last reaching a moderate level of consistency and stability that has been a long-desired national goal. Instead of being boom or bust, the new-housing market might finally find a comfortable level of production unknown since the 1960s.
Starts of new private dwellings first hit the magical 2-million mark in 1971, and maintained that pace through the next two years. But the housing market suffered a tight money financing shock and a glut of overbuilding and fell back to only 1.3-million starts in 1974, and only 1.2-million in 1975.
Then, momentum gathered again with starts going to a peak of 1.9 million and 2 million in 1977 and 1978, before again dropping down in 1979, and then plummeting to 1.2 million and 1.1 million in 1981-82. Since then we have had four of the most consistently stable production years of new housing in recent memory.
Housing starts jumped up to the 1.7-million level in 1983 and stayed there in that ballpark in 1984 and 1985. This year, according to staffer Bill Young of the National Assn. of Home Builders, starts are expected to exceed 1.8 million. This year’s upturn is plain and simply the result of lower mortgage rates; in the early part of this year sales of new single houses were up 22% above the level of 1985. All of the 1986 upturn is in single-family house starts because multifamily starts fell off.
Since the end of spring, housing starts and sales have suffered a modest fall-off as the result of mortgage rates increasing slightly--plus the onset of hot weather.
“Actually, it has become a matter of public record and observation that the new-home market is strongest in the first three or four months of any year and then cools off for four or five months, until coming alive for a few months of early fall before recessing in December and then bouncing back in January,” said Charles Browning, editor of New Homes Guide here.
Browning also noted that the Washington area may soon produce a plethora of more expensive, move-up houses because so many successful builders decided to appeal more to the upwardly mobile move-up market of people with annual incomes of over $75,000 and housing tastes in the $200,000-up neighborhood. Much of that pent-up demand was unloosed by the low level of mortgage rates earlier this year.
NAHB’s Young disagreed to some extent, noting that many first-time buyers are still finding new town houses in the $90,000 range and condo apartments under $75,000. However, he admitted that his own well-located (with a view of the Potomac River and posh Georgetown) one-bedroom apartment has appreciated 40% since he bought it in 1982 for about $68,000. Young insisted that it was a matter of prime location and a completion of a long sellout period for the redeveloped old apartment complex.
Meanwhile, more first-time buyers are shifting back to the existing house market, reflecting decreased importance and availability of “buy-down” new houses on which builders offered below-market rates to entice buyers. First-time buyers of new houses peaked in 1983 at 48% of the market and came down to the point that only 35% of new homes are expected to be sold to first-timers this year.
Increased numbers of trade-up buyers in the 1986 market resulted in sales of larger homes with more amenities. The median new-home sale price rose from $84,300 in 1985 to $93,000 this spring.
Young said it might be premature to assume that new housing production and sales have reached a long-sought plateau in defiance of boom-bust eras.
He said, “We know new-home sales are hot in many metro areas such as Washington, Southern California, Florida and New England. But there are housing hard times in Louisiana, some parts of Texas and other areas hard hit by the energy slump and agricultural crisis. Otherwise, we might be having 2-million starts in 1986.”
