Could be peak housing year

By Arnold A. Dill Senior Vice President Chief Economist The Citizens and Southern National Eank

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I housing is determined primarily by demographic developments and income growth. Demoglaphic demand --- for housing will remaln strong through the rest of this decade as the "baby-boom" generation continues to enter the age group when household formation rates are highest.

The number of households in the United States grew 1.990 in 1983 and 1.890 in 1984 and 19E5. Households should grow another l.E9o in 1986, but household growth will then begin a long slowdown as the "baby bust" generation enters the prime homebuying years. Growth in the number of households should be down to 1.590 per year in 1990, and I I 9o per year by late this c€ntury. While demographic demand for housing will begin to weaken later this decade, growth in real disposable income of about 390 annually should be a source ofstrength to the housing market.

Between 1986 and 1990, housing starts are expected to average about 1.85 million annually. By 1990, howwer, the dernogaphic tide will have turned and starts will trend downward to less than 1.6 million per year between 195 and 204.

The years betwen now and 1990 are therefore likely to be the last strong period for housirg for two decades. The weakest area of residential construction will be houses built for first time buyers. Additions and alterations should rise from around l89o of the residential construction market in

1985 to roughly 230/o by the end of the century.

Regarding the short run outlook, a sharp decline in long-term interest rates since mid-1984 combined with continuing growth in personal income should result in a 390 to 590 increase in total housing starts in 1986. Rising vacancy rates and potential tax reform could cause a modest decline in multifamily construction, but single unit construction should rise enough to cause the increase in total starts.

Story at a Glance

Strong demographic demand lor housing...number of house. holds will grow 1.8Yo...housing stans will average 1.85 million between '86 and '90...1ast strong housing period for two decades.

Rental housing vacancy rates have increased sharply in the southern United States. This is due to a sharp increase in apartment construction and a reduction in the demand for rental units due to the decline in the oil and gas industry. Because of the supply imbalance, the south will have less than its normal share of housing starts in 1986.

Nevertheless, the overall residential construction market should be good in 1986.