Consumers in a Buying Mood, but Industry Worries About Credit
McLEAN, Va. (AP) _ People are dreaming of new homes again after a winter of war and recession. Househunters are out in force, though builders fear tight credit could still crimp recovery from the worst slump in a decade.
″The past three or four weekends we’ve had anywhere from 15 to 25 people a day coming through,″ said Pat Young, an agent for an upscale townhouse project in this Washington suburb.
″Interest has certainly picked up,″ she said, from the five or six visitors a day in past months, when many families’ lives had been disrupted by the Persian Gulf War and by job losses associated with the national economic downturn.
The government reported Tuesday that housing starts were up 16.4 percent in February, only the second monthly construction increase in a disastrous year, and builders said both browsers and buyers were back.
Still, at the townhouse development in McLean, only seven of 37 units have been sold since building began a year ago. And construction has now stopped. On a sunny March day, the trees are budding and the grass greening, but behind the locked fences half-finished buildings are empty of workers.
Builder Bill Brar said the project has faced woes typical of the industry. At one time he had 16 contracts for the three-story, two-car garage, four- fireplace, 3 1/2 -bath townhouses selling in the $600,000 range, but many buyers had to back out because they couldn’t sell their old homes.
The project also was delayed because Brar’s bank ran into financial trouble It was salvaged when the government’s Resolution Trust Corp. took over the bank’s financial obligations.
For the time being, the builder said, the goal is to sell the 12 units almost completed before starting any new buildings. ″We don’t want to be too much ahead of the deliveries.″
Commerce Department figures for February reflect that caution nationwide. While housing starts were up over January to an annual rate of 989,000, they were still down 32.2 percent from the same month last year.
″Some healing has gone on during the downswing, but we’re not expecting a blockbuster in 1991,″ said David Seiders, an economist for the National Association of Home Builders. He predicted the housing market will be down about 10 percent this year over last year.
But builders agreed that the quick end of the Persian Gulf War has injected new life in the industry.
″People said ’my son might be drafted so I can’t think about a house,‴ said Pittsburgh builder Roger Glunt. ″We just saw zilch in December and January ... but now there’s good feelings about the conclusion of the war.″
″People feel more comfortable about their lives and are in a mood to buy″ following the end of the war, agreed Doug Spohn, a builder in the Atlanta area. He said his company will sell 11 or 12 homes this month, more than double the five of last month.
House-hunters are also encouraged by fixed-rate 30-year mortgages in the 9 percent range, among the lowest in a decade, and generally declining prices. The average price for existing homes in the East fell from $142,000 in the third quarter of 1990 to $135,000 in the fourth quarter. In the Midwest, prices fell from $75,000 to $72,000.
″Our phone has been ringing off the hook,″ said Mark Tipton, a Raleigh, N.C. builder. ″These people have been pent up for a long time and they are ready to buy.″
Tipton said it’s still a buyers’ market because of excess inventory, but that won’t last long if financial institutions, reeling from the savings and loan industry crisis and bad lending practices, don’t ease up on credit to developers. Failure to do so means builders won’t have the money to start new projects.
″If the banks don’t start funding now, inflation will drive prices through the roof,″ Tipton said.
″There are a lot of good things happening; the only real negative is this credit crunch,″ said Pittsburgh’s Glunt. ″If something doesn’t break loose in the next year, we’ll be in trouble.″
Difficulty in raising money for new projects also discourages any quick recovery in the construction industry. The Labor Department said 27,000 new construction jobs were created in February, but the industry has lost about 425,000 jobs since last May.