Housing Starts To Decline ln 1979, Economists Say

Alglouetnrnent and private industry economists differed sharply in their economic and housing projections for 1979 at a recent housins forecast conference sponsored b! the National Association of Home Builders.

Lyle E. Gramley, a member of the President's Council of Eeonomic Advisers expressed optim- ism that President Carter's antiinflation program would work, allowing for a 3 to 3-l/20/o increase in real growth in 1979 and another relatively strong housing year. In sharp contrast, private economists saw housing starts dropping as low as 1.5 to 1.6 million units next year, down from the 2 million starts expected lor 1978.

Five out ofthe last six recessions followed a period of tight money and high interest rates, an outflow of funds from mortgage lending institutions and a collapse in the housing industry, Gramley noted. But there is no comparison between the conditions that prevailed preceding the 1974-75 recession and the conditions of today.

The new floating savings certificates offered by thrift institutions coupled with a stronger secondary mortgage market and $7 billion in advances so far this year from the Federal Home Loan Bank Board, have allowed the Federal Reserve Board to put on the monetary brakes more "smoothly," allowing the economy to slow down gradually without causing a collapse in home sales and new housing construction, Gramley said.

And Lawrence Simons, FHA commissioner, repeated the Administration's pledge that "housing is not going to be used as the sole whipping boy to combat inflation." He estimated that housing starts would decline to about 1.7 million units in 1979, with most of the decline coming in the higher priced single family homes. He said government assisted housing starts in fiscal 1979 would reach 215.000 units, up from the 170,000 starts in fiscal 1978. santow also cited this trend, noting that "monthly payments are starting to eat people alive because !hey bought ahead of their lncomes.

Dennis Jacobe, economist for the U.S. League of Savings Associations, agreed with Gramley that with the aid of the new floating certificates thrift institutions -have been able to maintain their mortgage lending operations and avoid a mortgage crunch.

However, economist Leonard Santow said that the new certificates have only delayed the effectiveness of the Federal Reserve Board's money tightening moves and ensured a higher peak in lnterest rates.

"There is no way we can avoid a growth recession in 1979 or 1980," Santow said.

Jacobe, who pegged starts at 1.7 million units in 1979. said that one of the most disturbing trends in housing was that new home buyers "are stretching themselves very thin on their monthly mortgage payments." A recent study by the U.S. League showed that nearly three fourths of the home buyers with incomes of less than $15,000, one-half with incomes between $15,000 and $20,000 and one third with incomes between $20,000 and $25,000 spend more than 250lo of their income on housing.

Story at a Glance

William Smolkin, a prominent housing consultant from New Orleans, said that starts would total about 1.7 million units in 1979. He said there is an "unlimited demand" for new housing but recent inflationary pressures have priced out of the market a good percentage of the young people reaching their prime home buying ages between 25 and 35.

ln the 1980s, 4,200,000 people will be passing age 30 each year, and about 50oh of the households between the ages of 25 and 35 will eventually become homeowners, Smolkin said. Another key demographic trend is that in 1978 more babies were born than in any year since 1971, which is expected to increase the demand for childoriented, surburban housing.

Stephen G. Yeonas, a home builder in metropolitan Washington, D.C., said that rising housing costs are forcing people t0 accept condominiums, townhouse and duplexes even though they still prefer detached, single family houslng.

Lewis Letson, Rossmoor Construction Corp., which develops age-restricted communities in suburban Washington. D.C. noted that there was a growing market for housing designed specifically for empty nesters who had raised their children, retired and adopted new lifestyles. "lnstead of viewing housing as shelter, these people are more concerned with the totalitv of the environment and lifestyles,'i he said.

Letson said that the one-time capital gains tax exemption of up to $100,000 on the sale of a home should stimulate this market.

Economists attending the conference generally agreed that inflation was the big unknown in the housing forecast. "lnflation must be brought under control td'stabilize housing," Simons said.

Lumberman of the Year

National Forest Products Week, Oct. l5-21, was highlighted in the Redding, Ca. area by a joint meeting of the Shasta-Cascade Hoo-Hoo Club and the Redding Trade Club. Sponsored by 77 lumber and related firms, more than 490 lumbermen and industrymen attended. The Hoo-Hoo members annually name a Lumberman of the Year for the October meetins and this year chose Bob McKean.-

He is president and owner of McKean Lumber Co., a wholesale lumber firm, and is a partner with Louis Cattanach. Jr.. in L&B Lumber & Milling Co., Redding. The awards were presented by John Crane, president of Shasta-Cascade Hoo-Hoo Club and by lumberman George Rogers for the trade club.

Bob McKean was born in a lumber environment in McCloud. Ca. He received his early schooling there and completed his education at the University of Oregon in Eugene. He later served two years in the Korean War.

His start in lumber was in 1956 with Main Lumber Co. of Reddine in the capacity of sales trainee and in a few years was promoted to sales manager. He remained in that capacity until 1968 when he started his own business.

He was one of several lumbermen who started the highly successful Lumbermen's Invitational Golf Tournament held each September in Redding. This tourna- ment brings 200-plus lumbermen and railroaders to Redding from Salt Lake City, Reno, San Diego, Seattle, Portland and all points in between. He served as Chairman and has been Secretary-Treasurer of this organization for the past 15 years. o WideWidths, Long Lengths, UpTo 24"

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Timber Company Burns

The Arrowhead Timber Co. of Carver, Or., lost its cedar mill when it was burned to the ground by an October l4 fire, resulting in losses of over $3 million.

Although the company's planing mill, log deck and lumber inventory were saved, some 50 men are out of work until the cedar mill can be reestablished.

A spokesman for the company, Lowell E. Patton, said there is no suspiclon oI arson.

Hardware Exec Honored

More than 250 dealers representing over 200 retail store operations attended the 20th Annual Management Institute conducted recently by Pacific Southwest Hardware Association at Lake Tahoe, Nv.

The three-day event was preceded by a VIP dinner honoring the managing director of the Pacific Southwest Hardware Association, Otto H. Grigg, for 25 years of service to the hardware retailers of California, Arizona, Nevada, and Hawaii. Attending were over 100 guests including directors, past presidents, manufacturer and distributor representatives.

design and technical literature on a full range of interior-exterior redwood lumber applications is available f rom CRA, Dept. MER-78, 0ne Lombard St., San Francisco, Ca.. 94111.