Housing Gets lt in the Neck

By Robert D. Peterson Chairman of the Board Palmer G. Lewis Co., Inc. Auburn, Wa.

lT'S MY guess

Ithat '81 is going to be a re-run of '80 in both housing and autos. Here's the way I see it.

First of all. the inflation rate has remained high right through our 1980 recessionthis hasn't followed the pattern of other recessions. Since it's causing the Federal Reserve Board pleng oT worry, all members of the board are really committed to tightening the growth of the money supply. Therefore, interest rates will remain hieh.

Story at a Glance

High interest rates will hold housing to the same pace in '81 as '80, about 1.2-1.3 million . . . another record year for repair and remodeling interest rates down by the middle of '81.

Obviously, high interest rates will inhibit demand for housing. At this point.in time, mortgage rates are hovering around the l4Vo area, and the consensus opinion seems to be that these rates will remain hieh well into 1981. It's hard to belieie how high interest rates have gone. I did a little research in this area and came up with the followins data.

The prime rate wis only about 2Vo during the bulk of the 1950s! In fact, during the past 30 years it never rose above SVo until 1966, and, except for a surge up to SVzVo in late '69 and early '70, the prime never rose above 7Vo until late '73. Then it peaked, on a short needle-like apex, at l2%o in '74. That was the historical record until everything went benerk in late '79. The prime started out in 1979 at about llYzvo and held steady for the fust six months. Then it siarted soaring, all the way up to 20Vo, the point it reached in April, 1980. It started down just as fast as it took off, and it got down to about loyzvo

Iast summer. Now, it's back up to about lir/zVo. We don't think it's going to go up much more, but we doubt if it will fall much lower (possibly to the l2%o area) during-the months ahead.

In view of all this, it's our opinion that housing will be built at about the same pace in '81 as in '80. Once again,.the housing industry is going to get lt ln the neck.

As far as Palmer G. Lewis Company is concerned, we're going to laci: the facts, pay attention to the basics, and do what good common sense tells us what to do. In addition, we'll be budgeting for a modest increase in both sales and profits, and will go all out to hit our goals.

Just so there can be no misunderstanding, we are definitely not predicting gloom and doom for 1981. We think they'll probably build about 1.2-1.3 million housing units in '81, about the same as in 1980. Considering the need for housing, these are very low figures. But don't forget that we're probably going to have another record year in the repair and remodeling market. This market has become more important for all building material retailers and distributors who serve the dealer. We anticipate continued growth in this lmportant area.

Our high inflation rate is a fact of life. And there isn't any easy cure for it. The Federal Reserve Board is determined to lower that high inflation rate. With the cooperation of a lot of new faces in Washington, D.C., it's my guess that we'll see the inflation rate coming down before the middle of 1981, so we think there's light at the end of the tunnel.

And let's remember all the good news. Don't forget that conservative forgcasts predict an average of 1.9 million housing starts in the decade of the '80s. The figures of possibly 1.2 million starts in 1980'and iir 198 I mean that we'll have to have peaks of well over 2.0 million starts rluring several of the other years. It's also interesting to note thaf the low9_st {iggres for housing starts since World War II, 35 years ago, was 1.0 million way back in 1946.

The reason for this housing need is "old hat," but it's still valid-and that's the population mix. There will be approximately 12 million more 25-34 year-olds in '85 than there were in '65and 9 million more than in '75. With this basic demand for housing still there, it appears that the construction industiy, once again, will probably lead the way into the next economic recovery.