KENTUCKY REPORT WILLIAM THOMPSON executlve vlce precldent

by Don A Campbell

OUSING construction is booming despite a drop in new home sales, largely because of changes in home financing.

Higher priced houses are selling much faster than the average. This was demonstrated very clearly at the home showings in Louisville several weeks ago. It has been that way in Lexington for some time and Bowling Green, the other town in Kentucky that is having good sales, is rolling along as fast if not faster.

Experts say several good reasons have kept building up: s &l's have poured money into construction loans; states and localities have made available a record amount of mortgage money raised from tax exempt, mortgage backed bonds; and builders have started subsidizing low mortgage rates again.

However construction is bound to slow down ifsales keep falling. Ifnot, builders will be stuck with a lot of unsold houses. Even this situation will not be as bad as many expect.

We all expect it, a housing construction slowdown by now. Since June the rates on fixed rate mortgages have risen 2 percentage points, to a high of 133/cs/0. That has hurt new home sales and in some areas it has been worse than in others. As an example, U.S. Corp., the nation's largest builder,says thatAugust orders fell during the price escalation of April-June 1983. Dealers should encourage all suppliers to hold the line to a reasonable level and not price themselves and their customers out of the market. Prospective home buyers are and will be scarce in the future. Commercial and industrial sales are up slightly. However, the uncertainty and lack of oil production continues to effect the entire chain of distribution. "Hang in there!"

3790 from a year earlier. "The buyers just aren't coming out to the subdivisions" they say.

There is no doubt that new developments in housing finance seem to be the most important factor in keeping construction going and sales from dropping even further. As an example, the thrifts increased their lending by 16690 in the first seven months of this year to $19.4 billion from $7.3 billion a year ago. S& I's now make about l/3 of all construction loans, whereas last year they were making less than 2090.

National convention was the best yet. Business sessions, and social events were well attended by some 500 delegates. We were pleased to hear the South will ehjoy a 3190 increase in population during the next few years.

Ralph Norman won the golf tournament and Doug Ashy frnished his job as chairman of the board. I was relieved as chairman of the legislative affairs committee. The overall tone of the convention was one of optimism.

S& I'sby the way have encouraged building by making more adjustable rate mortgages. As fixed rates rose, adjustable rates were often held to I I 9o to ll%t/0.

We cannot discuss money without giving credit to the use of tax exempt mortgage backed issues. These bonds have been used to finance low cost mortgages, generally with interest rates lower than I I 90. In August alone, 22 states issued close to $2 billion of such issues, nearly % of the total isued in all of 1982.

But the hint of glut is also likely to slow the construction boom. Economists predict that housing starts will fall bythe end ofthe year, although by l59o to 2090 instead of as much at 3090. There is no doubt that this could slow the economic recovery. The growth in residential construction was the single biggest force behind the robust 9.790 second quarter growth in gross national products. Economists estimate housing accounted for l/4 to l/3 ofthat increase.

THE d-i-y trade kepr many dealers I in the black during the last recession. So if there is any thought of dropping off on d-i-y in favor of cnntractor return, all authorities recommend that you make every effort to increase the d-i-y aspect as you plan to increase the contractor trade.

Every trade joumal and economic report indicates the d-i-y trade wilt be stronger than ever in the coming two or three years. We should anticipate that area of grofih and be certain we are getting our share of that market.

Surveys show that the fall of the year is the best time for d-i-y projects, especially for insulation and storm windows and doors. Continue to advertise for the d-i-y dollar.