Home builders: No recession

Posted: Thursday, March 01, 2001

NEW YORK (AP) -- Has the housing market lost its role as an economic weather vane? Or has it kept its deft touch as an indicator?

In years gone by it was generally viewed as a good barometer of the economy's direction, the first to feel the effect of a downturn and a solid gauge also of an economy's improving health.

But now, amid gloomy stock forecasts, sharp consumer confidence declines in December and January, and manufacturing slowdowns, measurements of housing activity remain among the highest of the entire expansion.

This, despite six interest rate increases by the Federal Reserve within a 15-month period, all aimed at slowing the economy to a trot rather than a gallop.

Housing starts and new home sales did decline from 1999 to 2000, but by erosion rather than collapse, while home prices, ownership rates and median new-home size rose to expansion-era highs.

The National Association of Home Builders does not expect a general economic recession, and is activity statistics do not indicate one, which puts it at odds with contrary evidence now circulating among stock market and other forecasters.

In fact, the NAHB's own in-house survey of 800 builders, based on responses to questions regarding sales, subdivision traffic and builder expectations, rose in February after dipping in January and December.

David Seiders, NAHB economist, now expects to see the economy grow at just 1 percent ''or a tad below'' this quarter, rise to 2 percent in the second quarter and to 3.5 percent in the third and fourth quarters.

Bruce Smith, NAHB president and head of Bruce Smith Quality Homes in Walnut Creek, Calif., believes the critical factor in the economy is consumer confidence, which dropped abruptly in December and January.

He points to factors that could change that, especially a ''very, very active'' Federal Reserve that has already cut interest rates twice and is expected by the NAHB to add two more half-point cuts. And the NAHB would hope to further encourage sales by allowing withdrawals from Individual Retirement Accounts for homebuying.

Aside from consumer confidence and other strictly economic factors, there are ingredients in the housing market, demographic mainly, that builders see as supportive of sales over the next decade.

For example, ownership rates among 25- to 35-year-olds are still below where they were in 1979 and 1980, and ownership among minorities, while steadily growing, still has far to go to catch up with whites.

Census Bureau figures show that American home ownership, at 67.5 percent in 2000, has been inching higher since 1993 and 1994, when it was at 64 percent, but possession is heavily skewed toward the elderly. Levels last year reached a peak of 83.8 percent among ages 70-74 before tailing off to 77.7 percent among those 75 and older.

To get the overall percentage as high as 70 would require not just a continuation of gains by minorities, but in providing more opportunities for potential buyers in the 25 to 34 age group.

End Adv PMs Tuesday, February 27.

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