Community, economy help keep building market strong

Matt Morrow is executive officer of the Home Builders Association of Greater Springfield

Home building in the Ozarks is booming and with good reason. In 2002, housing starts throughout Greene, Christian and Webster counties approached or exceeded previous record highs. Clearly people are deciding the time is right to build their own dream home.

People occasionally wonder if our low interest rates could be the sole cause for such unprecedented growth in our housing market. But mortgage rates are pretty constant around the country. Why doesn't every community in America experience the same boom?

Three fundamental factors have worked together to stimulate residential construction. First, yes, interest rates are at 40-year lows. Second, greater Springfield has been, and continues to be, a desirable place to live and work. And third, our local economy has proven once again to be quite resilient.

It is important to note, however, that these three factors are interdependent. If interest rates were at all-time lows and the local economy was strong, but our community was an undesirable place to live, housing starts would struggle. Similarly, if the community remained desirable (which it shows every indication of doing), but our local economy faltered, housing would suffer. People don't make major investments if they feel their jobs are in jeopardy.

Ironically, the factor that jumps most quickly to people's minds (low interest rates) may have the least to do with a strong home building industry.

Interest rates certainly can affect demand for housing. Many homeowners today have little or no recollection of the crippling high interest rates of the late 1970s and early 1980s. Interest rates on 30-year fixed-rate mortgages crept over the 20 percent plateau. A good rate in those days was one in the low teens. Housing starts became housing stops overnight.

In recent years mortgage rates and rates on construction loans have gone from low to ridiculously low. When people won't lock in a 6 percent rate on a 30-year mortgage because they believe it will go lower, we have experienced a paradigm shift.

That said, it is important to recognize that interest rates have more to do with who is buying homes, than with whether anyone is buying homes. Mortgage rates are in almost direct inverse relationship with the stock market. When the stock market is booming, investors put more of their capital in stocks. Demand for bonds suffers. Since mortgages are based largely on bond rates, low demand for bonds equals higher rates for mortgages. Conversely, when the stock market struggles, investor demand for bonds increases and mortgage rates go down.

To the housing market, this relationship is critical. When the stock market is booming, interest rates will be up. The market for housing will be individuals who are more likely to own lots of stock and less likely to borrow money for a new home. Not surprisingly, high-end homes and retirement homes and communities are marketed during these times.

On the other hand, when interest rates are low, it generally means that stocks are not performing well. In this case, borrowers become the more aggressive buyers while shareholders exercise caution. First-time homeowners and young families become the target housing market.

Assuming we do not return to those painfully high rates of 20 to 25 years ago, interest rates will have more to do with housing market share than with overall housing demand.

Perhaps the simplest and most significant reason the housing market in the Ozarks is strong is because people simply want to live here. Beautiful, safe and friendly communities, good schools and a stable local economy are just a few of the most common reasons people seeking a place to move often seem to choose the Ozarks.

Many deserve credit for this desirability factor. Local government officials, city and county planners, and residents work hard to make the area a comfortable and attractive place to live. And their efforts pay off.

Also, the Home Builders Association of Greater Springfield holds its members to the highest membership standards and it shows in the quality of the work produced by its members.

The greater Springfield economy is quite durable. Our largest local industries health care and education are not particularly susceptible to the larger economy's ebbs and flows.

Small businesses are the order of the day in the Ozarks, and these are largely dependent on the enterprise of owners and managers. Labor costs, and costs of living and doing business in the area remain relatively low, making this area even more attractive for future business and industry.

The housing industry is a reflection of the local economy and the people who live and work in our communities. As long as those factors remain encouraging, look for continued growth in home building.