Housing starts may slow after years-long boom

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Like many of you, I remember special birthdays at my grandparents' house. My grandmother would mark my height on the kitchen doorway to see how much I had grown in the past year. She was always amazed at how much I had grown, and she would compare my height to the marks for the other grandchildren. The world is another year older and once again it is time to mark our spot in history to see how much we have grown and to predict where our mark will be next year.|ret||ret||tab|

The housing industry has, like everyone else, been riding the wave of a prolonged economic expansion for several years. And while 2000 holds much promise for home builders and remodelers, it looks like the moderate economic slowdown analysts have been predicting is on our doorstep.|ret||ret||tab|

Some gradual slowing could actually be healthy for the home building industry. In recent months the availability of skilled labor, lots for development and key building materials has been so tight that builders have had a difficult time keeping up with demand. The labor situation isn't likely to improve much next year, which means more delays in production for builders.|ret||ret||tab|

Where once the concern was pollution from smokestacks, the latest problem is a more vague concept called urban sprawl. It's clear urban sprawl will be one of the principal environmental and developmental issues of the new millennium.|ret||ret||tab|

The traditional issue will still be individual rights vs. the common good. As usual, there will be conflicting perceptions depending on the situation. Long-term growth plans must be developed that recognize the elements that create housing demand and plan for that demand.|ret||ret||tab|

Total housing production nationwide for 1999 is now forecast at 1.66 million units. This is up 2.2 percent from 1998's impressive 1.62 million starts. Look for that figure to decline about 7.5 percent next year to about 1.54 million units.|ret||ret||tab|

The Federal Reserve, in its effort to keep inflationary pressures under lock and key while keeping the engines of economic growth strong, determines the direction of mortgage interest rates and has a major effect on home sales and production. |ret||ret||tab|

Mortgage interest rates have already risen as a result of the Fed's recent tightening. At a recent National Association of Home Builders Construction Forecast Conference, panelists predicted that interest rates will remain close to current levels next year 7.9 percent for fixed-rate and 6.3 percent for adjustable-rate loans. |ret||ret||tab|

While this range is very good, it pales in comparison to the even lower rates that sparked a refinancing binge in 1998.|ret||ret||tab|

With interest rates on the rise, adjustable-rate mortgages (ARM) may provide a suitable alternative for buyers who don't want to wait to become homeowners. Indeed, the ARM share of the market has increased from less than 10 percent in late 1998, to about 30 percent today, a trend which is likely to continue in 2000.|ret||ret||tab|

While the economy has been growing at an annual rate of roughly 4 percent, the growth of interest-sensitive spending on housing and business investment has been more on the order of 10 percent. |ret||ret||tab|

Michael Moran, chief economist for Daiwa Securities America and a panelist at the NAHB conference, said, "the Fed is nervous about the pace of demand. This is what the Fed is focusing on, and this is the sector that the Fed can influence."|ret||ret||tab|

The short term conditions for new home sales are very good throughout most of the country, including the Springfield area. By February, the current economic expansion will be the longest on record, and if NAHB forecasters are right, it has a considerable distance to go. |ret||ret||tab|

As my grandmother used to say, "You still have a lot of room to grow."|ret||ret||tab|

(Sam Bradley is president of the Home Builders Association of Greater Springfield.)|ret||ret||tab|

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