Houses: The Year of the Big Buy

>"At this time last year I had sold exactly one house," says Pittsburgh Builder Vincent Amore. "This year I've already signed up $800,000 worth of business."

>"We sold only 18 houses all last year," reports Realtor John Rinello of Greenwich, Conn., "but we made 14 sales in the first four days of March alone. People have lost their fears."

>"In the last three weeks, our sales have doubled in just about all markets," adds Richard Wasserman, president of ITT Levitt Inc., the nation's largest home builder.

After more than a year of sluggishness, the housing market is expanding so rapidly that even experts who had been expecting a 1971 shelter boom are somewhat astonished. Buyers are quickly grabbing up not only new homes but also used houses, often paying just what the seller asks. The Nixon Administration has been counting on home and apartment building as a major force to help revive the U.S. economy. Housing starts fell 21% last year, to 1,463,000. The Administration prevented the drop from growing larger by giving the building industry massive injections of mortgage credit and subsidies, which produced a fourth-quarter bulge in construction.

This year the Administration expects a 20% gain, to at least 1,750,000. Last week the Commerce Department reported that the annual rate of starts climbed to 1,715,000 in February, up from 1,306,000 in the same month a year earlier. George Romney, the ebullient Secretary of Housing and Urban Development, calls housing "the brightest spot on the economic horizon." If the surge in sales continues--a substantial if--builders may reach Romney's target of 2,000,000 starts.

Fewer Frills. Seldom have so many fundamental forces lined up simultaneously to support a rise in housing. Young adults are forming families at a rate some 40% higher than during the 1950s and early 1960s, and hundreds of thousands of them have moved in with relatives, creating a pent-up demand. Home and apartment vacancies in metropolitan areas remain close to a 15-year low.

The main source of buyer enthusiasm is falling mortgage-interest rates. From a peak of 8 1/2% or 9% last summer, rates on conventional home loans have dropped to 7% in some cities and 6 3/4% in a scattered few, the swiftest decline in decades. This decline has had the double effect of reducing the buyer's monthly payments and enabling people with lower incomes to qualify for mortgages under the usual standards demanded by lenders. This is the picture on a $25,000 loan for 25 years:

Interest Monthly Income Rate Payment Needed To Qualify

8 1/2% $201.32 $10,066 7% 176.70 8,835

Last month the Federal Housing Administration gave the market a lift by cutting the ceiling on its home loans from 7 1/2% to 7%. Said Irving Rose, president of Detroit's Advance Mortgage Corp.: "It was the buying signal that everybody had been awaiting."

Builders have brought new homes within financial reach of millions more customers by erecting cheaper, smaller models with fewer frills. To chop the price from $35,990 to $29,900 for its least expensive home in one San Fernando Valley subdivision, Kaufman and Broad (1970 sales: $152 million) substituted vinyl tile for carpeting and used composition roofs instead of cedar shakes. The company also eliminated the fireplace and air conditioning as standard items and put less costly appliances in the kitchen. Builders are reducing the size of the plot and saving on sewers and water lines by putting up townhouses and apartments, which are sold as condominiums. In Chicago, Dayton and some West Coast areas, four-dwelling condominiums--or "quadrominiums"--have become the fastest selling form of housing.

Prices Down and Up. As a result of all the efforts to economize, the average price of a built-for-sale house in the U.S. fell from $25,100 in December 1969 to $22,300 last December. People who want houses or apartments would do well to shop around now, because prices are likely to rise again. Secretary Romney warned last month that the price of a typical new home may well be forced up by $2,500 over the next three years, merely to cover the cost of construction-wage increases. The cost of land for FHA homes has risen 80% during the past five years; in Southern California, builders now must pay about $30,000 an acre for raw land. Volatile lumber prices have soared by as much as 42% since December, and some builders foresee an additional 20% increase within a few months. Rene Henry Jr., executive secretary of the Council of Housing Producers, says: "We may be on the verge of the greatest inflation ever in housing costs."

One hope for avoiding that is to mass produce more homes in factories, where wages are far lower than those of on-site craftsmen. Both mobile home manufacturers and stick-by-stick builders are moving into the construction of modular homes, which are composed of room-sized, factory-finished units that are hauled to a site by rail or truck and swung into place by cranes. ITT Levitt has just completed a factory at Battle Creek, Mich., that can turn out 6,000 modular houses a year. In Fountain Valley, Calif., Levitt has also begun making homes that combine the techniques of both modular and mobile manufacturing. Though built on wheels, the handsome, wood-shingled units were designed by Barry A. Berkus to satisfy building-code requirements for conventional homes, a standard that many mobiles do not meet.

Mobile homes seem likely to remain the nation's main source of inexpensive new shelter; the average price of a 12-ft. by 60-ft. mobile is only $6,050. Shipments of mobiles declined slightly to 400,000 units in 1970, but manufacturers expect a rebound this year, because of falling interest rates and the new availability of FHA and Veterans Administration loans for the purchase of mobile homes on comparatively easy terms. Although four out of five are never moved from their first location, mobiles are not included in the Government's count of housing starts. If they were, about half of the nation's shortage of low-price new housing would disappear at a single statistical stroke.

Pressure from Subsidy. In its zeal to help more families obtain cheap shelter, the Government has become the dominant influence over both the cost and the amount of housing built in the U.S. Last year the production of subsidized units for low-and moderate-income families doubled to 470,000 dwellings. The Administration expects the total to increase to 500,000 this year. Builders are rushing to cash in on the enormous market that they can tap through subsidy programs. Under Section 235 of the 1968 Housing Act, the Government can pay all but 1% of the interest rate on each buyer's mortgage. Typical example: helped by the Government, a family of four with $375 a month pretax income can buy a $15,150 three-bedroom ranch home from Builder Ray Ellison of San Antonio for $200 down and $75 a month, including fire insurance and realty taxes. To buy the same house, a family whose income exceeds the Section 235 limits ($875 a month) would have to stand $600 in down payments plus closing costs, and the monthly payments would be $132.

Critics correctly argue that the subsidies are "buy now, pay later" devices that ultimately could cost taxpayers billions of dollars a year. The mortgage loans for them run for as long as 40 years, and every house that was subsidized in 1970 will also be subsidized for years to come; meanwhile, the number of federally aided houses grows greatly every year. By 1978, the Government expects that total subsidies for housing will increase by more than 500% to some $6 billion annually. Moreover, by adding half a million subsidized units a year to housing output when skyscraping construction costs are already a source of worry to inflation fighters, the Government itself has become a major contributor to the pressures that push up costs. In the well-intentioned process of making homes cheaper to rent or buy, Washington is driving up the price of housing for everybody.

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