Housing level in 1985-86

By Dr. Alison Lynn Reaxr Vice president and senior economist First Interstate Bank

r TOUSING

flhas staged a noteworthy recovery during the past two years, with starts of new units totaling 1.70 million in 1983 and an estimated 1.77 million in 1984. For 1985, we anticipate a total of 1.66 million new housing units, with another 1.56 million starts in 1986. While this forecast represents some modest easing in new housing construction, the projected levels will be a vast improvement over those of 1980 through 1982.

Some major factors will act to support housing during the next two years. Further increases in incomes, the recovery in employment, and the generally high level of confidence will help the purchasing power and attitude of potential homebuyers.

We look for real GNP to rise an average of 3.690 in 1985 and 3.2s/o in 1986. Unemployment should gradually move down to about 790. We anticipate an increase in the inflation rate, but are not projecting a major acceleration in prices. Our forecast indi-

Story at a Glance

Home buyer financing more favorable. .high point for housing in spring. .more stable years ahead...1.66 million new housing starts in'85.

cates an average rise in consumer prices of 4.60/o in 1985 and 5.890 in 1986, compared with the 4.2v/o increase estimated for all of 1984.

The deficit is likely to continue large during the next two years, but will not derail the recovery. Our forecast indicates a deficit of $187 billion in fiscal 1985 and $195 billion in 1986. The research we have done indicates that a significant relation exists between the change in interest rates and the deficit expressed as a percentage of GNP. The somewhat encouraging aspect is that this deficit-to-GNP ratio will ease to 4.890 in fiscal 1985 and 4.6s/o in the following year from 4.9s/o in 1984 and the peak of 6.1 9o in 1983. Consequently, the deficit will not by itself provide further upward

(Please turn to page 74)