New Starts: A Checkered Pattern

Despite lashing rainstorms, more than 50 families last month camped out for days in cars and tents around the sales office of the El Toro Sunwood housing development near Los Angeles. Their purpose: to be near the head of the line when 34 new homes, going for $58,000 to $67,000, went on sale. Three weeks ago, 650 people turned up at the sales office of the Leisure World development in Laguna Hills, Calif., to participate in a lottery. Those whose names were drawn from a barrel had the privilege of paying up to $128,000 for one of the development's 132 new houses. In Huntington Harbor, a marina complex south of Los Angeles, Christiana Co. recently offered 52 houses, ranging in price from $104,000 to $195,000. In all, 111 people showed up, and the firm also had to resort to a lottery.

Land Rush. These are but a few examples of the house-buying frenzy that is sweeping Southern California. Largely because of the region's improving economy and expanding population, the long pent-up demand for the limited available housing has resulted in scenes reminiscent of the Oklahoma land rush. The surge in sales is causing a boom in construction, attracting speculators, and hiking prices to levels that are unrealistically high, even for the normally inflated real estate market in Southern California. Says Frank Carr, executive vice president of W.R. Grace Properties, Inc., a land-developing arm of W.R. Grace & Co.: "I've never seen anything like it. You have to call it hysteria."

Though the California boom is exceptional, signs of revival in the recession-battered housing industry are cropping up elsewhere round the country. In August, housing starts were running at an annual rate of 1.5 million, up 11% from July. That is a marked improvement over a low of 880,000 starts registered in December 1974--but still well below the peak rate of almost 2.7 million posted in February 1972.

To make it easier for more people to buy houses, President Ford has called for legislation that would reduce down payments on Federal Housing Administration mortgages by up to 50% and would increase FHA authority to insure home mortgages from the current limit of $45,000, to $60,000. But in the view of most housing experts, the Ford proposal would have little impact; only 6,000 new homes a month are now sold under the FHA insurance program.

One reason that the nationwide rebound in housing lacks real punch is the lag in construction of new apartment buildings--in part, the result of the virtual freeze on federal subsidies for low-income dwellings, which was imposed by President Nixon in 1973. Moreover, the recent slump drove many small-and medium-sized subcontractors out of business, reducing the ability of the industry to meet the suddenly increased demand for single-family houses. Another major impediment to faster growth: the price of new and existing homes has been rising faster than the average family's ability to pay for them. Just between January and June of this year, the median price for a new one-family house went from $41,600 to $46,200, and the interest rate on mortgages is still hovering around 9%. Notes Doyle Stuckey, vice president of the Greater Houston Builders Association: "If we could get under 9%, it would bring a lot of people into the market."

The recovery--such as it is--varies sharply from region to region. Detroit's Advance Mortgage Corp. president, Robert Mylod, calls it "the most checkered housing market in memory." The upturn is weakest in the Northeast, which is plagued by an exodus of middle-income residents, higher than average joblessness and the troubled financial plight of older urban areas. In New York City, housing starts for the year are expected to hit 5,800--only slightly higher than the 5,347 units begun there in the Depression year of 1932. Conditions are slightly better in metropolitan areas of the Southeast, but a substantial backlog of unsold houses and condominiums still exists in Atlanta and Miami. In other areas--Houston, Chicago, Seattle and parts of the Rocky Mountains--demand is fairly strong and growing.

In California, the shortage of new homes is also pushing the price of existing units beyond the means of many families. Prices of small houses near the beach at Santa Monica, for example, have soared from an overpriced $55,000 to a ludicrous $100,000. For families who already own a home, the going is easier. For example, Harry Budds, a deputy sheriff for Los Angeles County, stood in line to buy a $97,000 house in Huntington Beach. He then put a FOR SALE sign on the house he purchased four years ago for $36,000, and within days found a buyer willing to pay $66,000.

Climbing Prices. Speculators add to the price pressure. In some instances, investors--including doctors, lawyers and other professional people--buy blocks of new or existing houses. Often they can resell these units within days or weeks at a substantial profit. For builders trying to promote their developments as stable, permanent neighborhoods, speculators are about as welcome as dry rot. Rossmoor Corp. announced before a recent lottery that speculators would be banned. But as Marketing Vice President Elm Weingarden concedes, there is really little developers can legally do to keep out speculators.

Experts feel the housing stampede in California could have important implications nationally. They note many of the same conditions that prompted the boom in that state are developing elsewhere. Thus as the national economy continues to perk up, the rush to buy homes may bring housing lotteries, camp-outs, speculation and rapidly climbing prices to regions of the country that have so far escaped them.

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