Price rises, high US deficits threaten housing recovery?being built, but interest-rate rise could dry up the market

By , Real estate editor of The Christian Science Monitor

Will the burgeoning federal debt and sharp rise in the price of new housing jeopardize the recovery of the housing industry? ''This year we'll build about a half-million more residential housing units than last year,'' predicts Michael Sumichrast, chief economist for the National Association of Home Builders (NAHB).

''In 1984, we look for a further increase of about 250,000 units, based on a slight decline in interest rates.''

Sumichrast, however, says he's ''very worried about 1985 because of the high federal government deficit.'' Federal borrowing now takes 60 percent of the total available capital, a new record, and higher rates could result.

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[Interest rates, in fact, now are trending upward again with the FHA/VA rate up one-quarter point to 12 percent just this week.]

Despite his concern, the NAHB economist says he was assured by Preston Martin , vice-chairman of the Federal Reserve Board (FRB), that ''the federal government wants to support the recovery in housing.'' Translating that pledge into practice, however, is a continuing concern for home builders.

Martin agrees that ''the only thing that can stop this would be international financial problems, our being a 'global economy,' and megadeficits causing substantial pressures on interest rates.''

The FRB vice-chairman notes that a 3 percent change in real interest rates equates to 350,000 to 400,000 new housing starts.

Also troubled by the mounting federal deficit, the National Association of Realtors (NAR) is prodding Congress to do something about fiscal 1984.

''We believe that the projected deficits of near $200 billion for the foreseeable future require action now or the economy will not regain health,'' NAR warns Congress.

The trade group urges that defense spending grow no more than 5 to 7 percent a year after allowing for inflation, counsels restraint in the execution of discretionary programs, and asks for modest tax increases, if needed.

''I'm also concerned about the increase in house prices,'' says Sumichrast of the 110,000-member NAHB.

In the last month, new-house prices in the United States rose an average of 2 1/2 percent - a 30 percent annual rate. Sumichrast says he doesn't expect that pace to continue. In the past year, prices were up 6.7 percent.

''We expect prices to increase from 5 to 7 percent this year across the country,'' the home-building spokesman predicts.

Fueling the upward price trend is the sharp increase in such items as structural lumber, up 14.8 percent in April alone. Lumber was selling for $130 per thousand board feet at its low point of a year ago, compared to $264 at the end of April. Glass is up 8 percent. Copper, brass fittings, and nails are all up. Cement, by contrast, is stable.

The four-year recession was bad news indeed to home builders, with NAHB total membership off by 20,000, the biggest membership drop on record. ''It was the first time we'd ever had a steady decline,'' Sumichrast says.

In some cities - Chicago, Detroit, and St. Louis, for example - residential home construction fell anywhere from 60 to 80 percent.

Now the tide has turned, even in such small cities as Rockford, Ill., and Akron, Ohio, both with massive unemployment.

''Most builders around the country tell me that they've sold more housing already this year than in all of 1982,'' Sumichrast reports - and many more than in the last two years.

''The building industry was a major force in the economy's turnaround in the first quarter of 1983,'' says George A. Christie, vice-president and chief economist for F.W. Dodge.

For the first time in 40 years, the Northeast is expected to build more housing units than the north-central region - 12 1/2 percent of the national market, compared to 9.8 percent two years ago.

''The positive outlook for the Northeast is based on the growth of industry, unemployment that is lower than the national average, and a sound economic base, '' according to Sumichrast. ''Massachusetts will have a 70 percent rise in housing starts,'' he predicts, ''and Vermont 100 percent.''

Some parts of the country are still a disaster, however. ''Houston is becoming a new Detroit,'' he declares.

''The South isn't going to grow as much, although it still accounts for about 50 percent of total starts.''

The California market is coming back after dropping practically into the ocean, according to the NAHB economist, who has been to some 40 cities since the first of the year. ''At one time there were some 35,000 unsold units,'' he recalls.

Los Angeles and Orange County used to be around the top in housing activity, but now they're around eighth or ninth.

Meanwhile, existing homes are selling at the fastest pace since December of 1980. April sales were up 1.5 percent from the March level, reaching a seasonally adjusted annual rate of 2.75 million units.

In December 1980, resale housing was selling at the rate of 2.91 million units a year.

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