HOUSING: Starting Downhill

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While most other major businesses were still limping toward recovery from the 1970 recession, the $55 billion housing industry was well into a boom that has all but sent U.S. home builders through their own roofs. Many contractors and economists have expected a slowdown for more than a year. In fact, well aware that the inevitable down cycle would come with a crash if it did not come gradually, they have grown increasingly concerned about the fact that the level of new construction stayed so high so long. Recently the Commerce Department considerably eased their worries. It published housing figures for April showing a marked but still orderly drop-off that should—if all else goes well—slow the building industry to a sustainable pace.

Actual housing starts in April fell back to an annual rate of 2,100,000, down about 16% from their peak of 2,500,000 in January. The number of new building permits issued across the nation—an indicator of how many starts will be recorded in future months —took an even sharper fall of 18%, to an annual rate of 1,800,000 units (see chart). That was the biggest monthly drop since the Government began tabulating figures on permits more than 80 years ago. "The widely predicted end of the housing boom of 1971-72 has finally arrived," declares George A. Christie, chief economist of McGraw-Hill's Dodge division, which compiles construction statistics. "The housing market has nowhere to go but further down."

Precisely how much further down is of course the question of the day in the building industry. Most economists expect that a continuing decline will keep the number of new houses and apartment units started this year to about 2,000,000, roughly the rate that builders figure can be maintained over the long run. Economist Michael Sumichrast of the National Association of Home Builders believes that the construction slowdown will bottom out in the middle of next year, at an annual rate of 1,600,000 units, and then gradually reverse itself. If the slump does in fact go only that far, most housing concerns should survive it without suffering too much damage.

Extra Fees. Some contractors, though, worry that they may not pull out of the dive on schedule, even when the present oversupply of new dwelling units in some areas has been filled up. The reason: increasingly tight money. As consumers continue to fuel the present surge in retail buying, and savers take note of increasingly higher returns elsewhere, they are stashing less of their money in the nation's savings and loan associations, which finance more than half of all residential construction. Such institutions may well receive a net in flow of only $20 billion during 1973, v. $33 billion last year; in California, New York City, Washington, D.C., and some other areas, they have already suffered a net outflow. S and Ls typically pay 5% interest on passbook accounts and 6.5% on certificates of deposit that must be held for a specified time. Sophisticated savers are turning instead to Treasury bills that pay nearly 7%; commercial paper, a form of corporate lou, that yields 7.5%; and commercial-bank certificates of deposit, that pay almost 8%.