Consumer Debt's Role in Housing

By rililiam E. Baugh William E. Baugh & Associates Newport Beach, Ca.

HE basic reason people in the past purchased homes was to provide shelter, but in the past 2 years the attraction of developing equity through appreciation has created additional impetus to the demand.

This psychology of buying has been further fueled by interest rates on debt at a level lower than inflation rates. Hence, the cost factor could be ignored to a great degree as the beneficial owner had a veritable no-risk probability of winning the housing game.

Within the current atmosphere of ascending short term interest rates must come the anticipation that long term money rates will rise. Mortgage lenders, to remain profitable, must maintain a differential between costs of funds and income from funds loaned. Disintermediations, as we knew it in past periods of rate increases, is now minimized through such avenues as T-Bill certificates and mortgage pools. But rates will now fluctuate more due to short term rates geared to actions of the Fed.

Experts maintain different viewpoints on what the money market will do in the next l2 months, but demand will be existent in the marketplace, particularly in the Sun Belt Areas.

Demographics indicate that the

Story at a Glance

greatest housing-need sector of the market (30-49 year olds) is the largest group we have in our population which bodes well for our industry.

The major obstacle to home buyers however, will not be in costs, rates, or needs but in personal budgeting as consumer and mortgage debt is now at an all time high. This is particularly significant when related to disposable income. While per capita income has risen 9lolo since 1969, consumer debt has risen even more.

So there will be demand in the market and sufficient affordable funding to finance it. However, such demand as we have known recently will be tempered somewhat by the fact that seldom can we maintain three block-buster years in a row. It will be a good year when related to the past l0 years. It should produce 1,750,000 conventional housing starts. By adding 300,000 mobile homes we will achieve the long term national goal of 2.000.000 total starts in 1979.

Our industry will once again demonstrate that the private sector in a free market can meet the needs of a society requiring affordable housing through our continuing improvement in productivity, efficiencies and innovations.