Scraping Bottom

The credit-starved housing industry has sunk proportionately faster and fur ther in 1966, compared with where it stood a year ago, than the whole U.S.

economy did during four years of Depression in the '30s. Since last Decem ber, when tightening money began to choke off housing's flow of mortgage funds, the annual rate of home and apartment starts has dropped more than 50%, to a 20-year low. In the latest count, in October, private-housing starts were scraping along at a mere 848,000 a year. At that pace, the prosperous U.S.

is building less new housing per capita than such countries as Austria, Greece, Czechoslovakia, Spain, Italy, Yugoslavia and even hard-pressed Britain; per-capita U.S. output is only about half that of Sweden, West Germany.

Switzerland and the U.S.S.R.

Last week, for the second time in a fortnight, President Johnson responded to the industry's cries for help by doling out a little federal mortgage money. He ordered the Federal Home Loan Bank Board to pump as much as $500 million into savings and loan associations over the next three or four months in order to help them step up their lending on homes. The week before, the President had released $250 million through the Federal National Mortgage Association for direct Government purchase of FHA and VA loans on low-priced new homes.

Glacial Torpor. Though $750 mil lion sounds like a bundle, it is only a Band-Aid for an industry that often consumes more new capital per year than all stock and bond issues combined.

The money will finance about 40,000 houses -- 25,000 through S & Ls, with an average of $20,000 per loan, and 15,000 through FNMA, under a $17,500 loan limit in most major cities. That is about 6% of the gap between the indus try's current production and the 1,600,000 homes a year that the nation needs to keep up with the basic demand created by new families and increasing demolition of unfit dwellings.

Because housing responds with glacial torpor to such conditions, the prospect is that fewer homes will go up next year than in 1966. At its annual convention in Chicago last week, the National Association of Home Builders forecast a 10% decline, to 1,100,000 starts. The Commerce Department ex pects a drop of as much as 14%, to something between 1,050,000 and 1,150,000 new units, in either case the lowest number of starts since 1946.

Back in Business. Despite that gloomy outlook, the mortgage-money market has begun to ease slightly. S & Ls, which normally make more than 40% of all home-mortgage loans, are now soliciting business again in some areas. In California, Illinois and Texas, a few S & Ls have shaved mortgage rates, though charges of 7% to 71%, plus a onetime fee of 2% to 4% for making the loan, remain common in the West.

When the money squeeze hit last spring, S & Ls had on their books some $3 billion in promised but unmade loans. For months, they had to use most of their available funds making good on those commitments. Now the backlog has been cut nearly in half. "We're reaching a point where it won't take an awful lot of fresh money to get the industry back into mortgage lending in a significant way," says President John W. Stadtler of National Permanent S & L in Washington, D.C. Happily, savings again are flowing into S & Ls, after huge withdrawals earlier in the year. But the brightening mortgage outlook could quickly fade, S & L leaders agree, if the Treasury goes ahead with its tentative plans to issue a 5% supersavings bond, which would suck money away from thrift institutions.

As builders have dismantled organizations, dispersed labor forces and dropped land options, the economic ripples have spread. The price of some suburban acreage has slowed its long climb. Construction unemployment rose to 9.3% last month. So far this year, housing has slumped 30% in Omaha, 39% in Albuquerque, 40% in Philadelphia and El Paso, 51% in Los Angeles, 58% in Reno. Builder Dean Hunziker of Ames, Iowa, has cut his production from 100 to 72 homes a year, laid off half his work force. Houston Builder Conrad Harness, who planned to put up 100 apartments and 100 homes this year, now says he is building only 56 apartment units, because "the market was so bad I had to get out." Great Lakes Homes, once a big Wisconsinbased home prefabricator, has filed in bankruptcy. To lure customers despite forbidding mortgage terms, some Boston builders have offered to shave $1,000 or $2,000 off the sales price if the buyer will accept a house with one or two unfinished rooms. Allstate S & L, taking over a tract of $45,000 homes from a bankrupt developer in Whittier, Calif., even gives a free Mustang to buyers who make a 20% down payment. Still, a few builders are thriving. With ample lines of mortgage credit, Long Island-based William J.L. itt expects a 20% increase in sales (to $89 million) and profits, has just announced plans to expand into the Chicago area.

Radical Overhaul. In their effort to put housing on a sounder long-term footing, builders and materials suppliers are concentrating on ways to reduce housing's financial dependence on S & Ls, mutual savings and commercial banks and life-insurance companies. U.S. Plywood, for example, is trying to enlist other big firms in a plan to form a corporation to provide the top 15% of 90% -mortgageloans, thus enabling conventional lenders to stretch their funds further. Last week N.A.H.B. urged the Government to expand the Federal National Mortgage Association, now confined by law to the purchase of FHA and VA loans, into a facility dealing with non-Government mortgages as well. Housing & Urban Development Secretary Robert C. Weaver went so far as to suggest that the whole cumbersome system of home buying and financing needs a radical overhaul "to get us out of this dilemma and prevent recurrences."

The longer housing stays in its slump, the more explosive its comeback should be. The rapidly widening gap between production and demand is already helping to drive up rents in some cities, and there is worry in Washington that actual housing shortages may appear by mid-1967. When the pent-up market finally makes itself felt, the resulting housing rebound could well pump new steam into the whole U.S. economy.

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