US Housing Market Begins to Rebound
Builders say sales are rising, but many predict only modest upswing
NORTHBROOK, ILL. — AUG. 2 was the day The Perlman Group Ltd., a Chicago-area developer, opened an on-site sales office at its new Cotswolds subdivision. Simultaneously, Iraq invaded Kuwait, gasoline prices soared, and consumer confidence plunged. At the Cotswolds, buyer traffic "became lighter and lighter." November and December were "just awful," says development director James Perlman. Only deep discounts maintained the target of two to three home sales per month.
Developers elsewhere fared the same. In January 1990, single-family housing starts in the United States had stood at a seasonally adjusted annual figure of 1,078,000. By January 1991 they had fallen to 632,000, the lowest level since the 1982 recession.
Then in February, "it was like God was parting the Red Sea," Mr. Perlman says. In just four weeks he made nine sales of more than $300,000 each. "Discounts are gone."
Builders, agents, and lenders around the country tell similar stories, leading many to conclude that the housing market is on the rebound, albeit lightly, after hitting bottom in January.
In Phoenix, real estate agent Claude Mattox of Terra Marketing says he used to sell $100,000 to $150,000 worth of low-priced, bank-repossessed homes per month. The southwestern city became severely overbuilt in the early 1980s when projections of "continued astronomical growth" didn't materialize, he says. The market had been inching its way back up for the last four years.
In February, though, Mr. Mattox's sales volume jumped to $300,000. Another $200,000 went into escrow for closing this month or next, he says.
Even New England, which has replaced Texas as the synonym for real estate catastrophe, experienced "a definite pickup" in February, says Joan Slater of Hunneman & Co./Coldwell Banker in Boston. "People have hopes for the economy."
Ms. Slater says one condo on Boston's prestigious Commonwealth Avenue had been on the market for more than a year, during which the sellers had "brought it down, brought it down, brought it down" from the high $400,000s.
The condo finally sold, but the sellers had to accept $35,000 less than their last asking price, settling for the high $300,000s, Slater says.
Recently lowered interest rates are most frequently credited for sending homeshoppers streaming through developers' subdivisions and open houses. Lack of demand for mortgages and action by the Federal Reserve pushed rates on fixed-rate mortgages down to 9 percent or less, a level not seen in a dozen years.
The impact of the rates was detected in surveys taken by the National Association of Home Builders.
In January, 24 percent of builders surveyed told the NAHB that weekend subdivision traffic was "good to average." In the first two weeks of February, the figure jumped to 42 percent.
"And that was even before the war finally concluded," says NAHB spokesman Jay Shackford. "Our assumption is, there is going to be somewhat of a turnaround."
Hundreds of thousands of military personnel, whose service in the Gulf war has made them eligible for government-backed home loans, are expected to boost the market.
However, economic uncertainty continues. Last week, the government announced higher unemployment figures for February.
"I think the biggest unknown in everything is the level of confidence," says Mike Wilson, deputy director of research at the United States League of Savings Institutions. "Just how well-off do households feel?" The league's 2,400 members lend 80 percent of their money to buyers of existing homes.
So far, no one is predicting more than modest improvement in the housing market this year. The NAHB sees an upward trend in construction of single-family homes (including townhouses) but still expects the 1991 total to fall below last year's.
The speed of recovery is expected to vary from region to region. NAHB chief economist David Seiders says the fundamentals of the New England market suggest a "relatively mild" recovery this year. That region was hardest hit by the real estate recession and will take longer than others "to regain anything that looks like strength," he says.
California also had not been "doing well at all," he adds. The number of permits issued to build single-family homes in California fell 35 percent last year when contrasted with 1989.
Permits up in many states
Yet in 22 states, most located in the center of the country, the number of permits increased. The Midwest recovered from the recession of the early 1980s like a slow-moving freight train, Mr. Seiders says. It had good momentum but never overheated and thus avoided a drastic corrective cooling-off period.
The oil-patch states, which have been dusting themselves off from their tumble during the mid-1980s, continued to improve last year.
Permits for single-family residences rose 8 percent in Houston, 9 percent in Dallas, and 13 percent in Denver, while the national figure declined 15 percent.
Certain markets in Texas and Colorado, Seiders says, "are now the strongest areas in terms of short-term growth prospects."