At Last, a Slowdown

ALTHOUGH 1972 was a rare year in which U.S. business performed almost exactly according to predictions, it did contain one embarrassment for economists: housing starts, which were widely expected to decline, instead rose 15%, to a record 2,400,000 units. Undaunted, economists are again forecasting a slowdown in 1973, and this time it seems that they will be correct. As builders gather in Houston this week for the annual convention of the National Association of Home Builders, many concede that the industry cannot keep up the 1972 pace. Housing starts are expected to slip by 8% to 17%, to a range of 2,000,000 to 2,200,000; one recent Government estimate is 2,180,000 (see chart).

A gloomy prediction? It looks more like the timely cooling of a fever. The 1972 boom was fueled largely by easier-than-expected credit. If it were to continue unabated for another year, overbuilding might set the stage for a severe slump in 1974. Nationwide, home and apartment vacancies are still relatively low, but 1972 nevertheless brought the first signs of an emerging glut in some areas where housing demand had appeared insatiable. Starts in California have run well ahead of population increases for the past two years. Apartments are in oversupply in Atlanta, Dallas, Los Angeles, Denver and Minneapolis. In Houston, after a decade of rapid construction, many apartment buildings are only 80% rented, and some new ones are less than half-filled.

One leading Houston builder admits:

"We have been building new apartment projects not because of demand, but because of the money available."

Moratorium. Bankers still have money to lend, but builders are reading the signs and cutting back construction of apartment houses in favor of single-family homes, townhouses and condominiums, all of which are still filling up rapidly. As a result, builders expect to get down to a rate of starts--still among the fastest in history--that can be sustained for years to come. Marriages are expected to average 2,200,000 a year through the 1970s, v. 1,800,000 annually in the 1960s, and each wedding creates a new family that is a prospective buyer or renter of a home or apartment of its own. The exact size of the 1973 decline in housing starts depends partly on how deeply Washington cuts subsidies for public housing. The Office of Management and Budget, fighting to hold down federal spending, has proposed an 18-month moratorium on all Government commitments to finance new public-housing projects. Housing and Urban Development Secretary George Romney is righting for some public-housing money, but his clout is reduced by his lame-duck status.

For home buyers, the 1973 outlook is not especially cheerful. Not only will builders be offering a somewhat smaller selection of new houses and apartments, but prices will be higher. Rising costs of land, lumber and labor are expected to raise the price of each new home enough to keep the value of all residential construction equal to last year's $53 billion. Also, most bankers expect mortgage interest rates to climb as much as half a percentage point above the current average of 7.6% on conventional loans. One result is a continuing boom in relatively inexpensive mobile homes, which are not counted in housing starts. Builders expect mobile-home construction this year to rise 8%, to 650,000 units. By 1980, some federal officials and builders predict, 10% or more of all Americans will be living in mobile homes.

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