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Dick Turpin

Indicators Point to a Good Year in Housing

January 27, 1985

The nation's economy enters the new year with a great boost from statistics that bode well for the housing industry.

As widely reported last week, the significant growth in output of goods and services and the low rate of inflation are confidence-building factors for would-be home buyers.

President Reagan, who vehemently opposes news leaks, broke his own rule at one of the Monday night inaugural balls--unable to contain himself in the euphoria of the evening--by saying that the Commerce Department would announce the next day two items of very important economic news.

By Tuesday, the world knew that the gross national product, up 6.8% in 1984, was the best since 1951, and that the once-recalcitrant rate of inflation was at an acceptable 3.7%, the best since 1967.

With such positives for openers in 1985, the construction and real estate industries can take heart for a bright and active year, particularly if the mortgage rates slide down another fraction. Many analysts feel that even at an average of 13.5%, production of new homes this year nationwide should reach a respectable 1.75-million-unit level.

According to the latest available (November) California figures, housing starts rose by 6.8% but sales dropped 3%. The new, good news portends changes for the better.

During November, the Bank of America reported, 190,700 housing starts (single-family and multifamily) were recorded with the median price of a house slipping by 1% to $110,402. Building permits for the month totaled 234,500, up by 20% from October.

Apprehension and caution among consumers as they read continually about the nation's deficit, and its probable consequences applying to housing, have been a factor in a fairly static market. But with the expressed presidential and congressional attitudes that something like $50 billion must be reduced from that deficit now, the outlook for the always mortgage interest-sensitive housing industry is enhanced.

The rates now are generally at a five-year low and for potential buyers, there is the likelihood that conventional rates may drop below the so-called magic 13% mark, should action result from all the talk about trimming the national deficit. The most positive factor may be that rates will not rise during all the public debate and wrangling.

Among the optimists for 1985 housing is Stan Ross, co-managing partner of Kenneth Leventhal & Co., certified public accounting firm and specialists in the real estate field.

His belief that 1985 will be the best year in this decade for home buyers is based on the stability of interest rates.

"Interest rates are likely to remain low (in 1985) and buyers will be able to reap the benefits of reduced inflation in two ways. New homes being offered have been built in a low-inflationary environment so that people who buy in 1985 may enjoy much greater appreciation on the purchase. At the same time, the total cost of buying the home will be less because of lower interest rates."

In Houston currently, about 50,000 builders and others involved in home and light commercial construction are attending the 41st annual convention and exposition of the National Assn. of Home Builders and you can bet they are encouraged by last week's reports on the GNP and inflation.

Construction on more than 1.74 million homes was started last year, the best output in four years. Most guesses are that 1985 will top that figure.

NAHB's president, Peter Herder, a Seattle builder, expects a "good" first half for 1985, but adds that the "outlook is a little uncertain beyond the first half." He hopes the torrent of words and reports during the four-day conference will shed more light and optimism for the future.

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