Story at a Glance

Housing starts in '82 will be 1,325,000 barring a cred:t crunch smaller houses, more multis with basic changes for housing over the next 2 years ... the pickupwill be in the 3rd quarter.

NAWLA's outlook for 1982 housing is 1,325,000 units. We consider this forecast to be optimistic, and it is conditional on the premise that there will be no credit crunch. Should there be serious disintermediation in the money markets early next year, as some economists predict, then we would guess that 1982 starts would

Let's all hang in there!

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

approximate 1,150,000. We do not feel there will be a credit crunch. It should be noted that while interest rates have been very high and housing has been very depressed, we have not experienced the credit crunch like the one in 197 4-7 5 .

Another consideration regarding 1982 housing is that there is every reason to believe that the housing mix will continue to change. Houses will likely be smaller in size, and there will be a higher percentage of multi-units. Thus, the amount of product per unit will decline.

We think that the first half will remain slow with the pick-up occurring in the third quarter of 1982.

Beyond that, we have been suggesting to NAWLA members that the level of U.S. housing will undergo some basic changes over the next two to four years.

We do not believe that true demand is 2 million starts per year and using this figure as a bellwether should cease. The fact is that we met the demand of the homebuyers between 1975 and 1979, and we did not average 2 million starts a year during that period. Remember all those people who couldn't afford to buy but did so because of the inflationary

(Please turn to page 80) have to carry the whole weight of the battle! for 1982!

lT LOOKS like Imore of the same

Morethantwo years have gone by since Federal Reserve Chairman Volker and his Board got everybody's attention in the fall of 1979 by jumping the Federal Reserve discount rate all the wav from I I to l2Vo in one single move-. This happened only 19 days after they had raised it to llqo. In succeeding months, the Federal Reserve raised their discount rate all the way up to l4qo and also superimposed a surcharge that quickly rose up to 490. In addition, substantial increases were made in reserve requirements for all lending institutions.

Those gigantic moves, taken in their entirety, were equivalent to hitting the construction industry right between the eyes with a 2x4! All of this happened more than two years ago. It's just as tough today!

Most of the people that I've talked to in this industry recognize that inflation is an even greater danger than recession. Nevertheless, more and more of us are beginning to feel that "killing" interest rates shouldn't

Story at a Glance

A modest upturn by the middle ol '82. interest rates may come down fasterthan anyone expects run as lean as possable less than 1.2 million starts next year.

I find it hard to remember that the prime rate was only 290 in 1950 and averaged 2-4s/o during most of the 50s. Even during all of the next decade, it only rose gradually up to about 590. Even during the bulk of the 70s, the prime rate was in the 6-890 area most of the time. It didn't start soaring into the stratosphere until late 1979. Then it kept rising right up to 20s/o in April, 1980. That shattering rise in interest rates, between the fall of '79 and the spring of '80, was primarily due to the Federal Reserve action taken in the fall of '79. Everybody in this industry has been suffering ever since.

We don't anticipate that we're going to see any better business prospects in our distribution business between now and next spring. In fact, our management agrees that it will be very prudent to prepare for a hard struggle all through 1982. If some improvement does occur in 1982-and I think it will-then we'll just welcome it all the more with open arms! However, between now and then, as we see it, our main job is not going to be

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