Housing Expected Off, But Remodeling Seen as Remaining Strong

by WOHe

Housing Expected Off, But Remodeling Seen as Remaining
Strong

WASHINGTON, DC The moderate slowdown that economists have been
forecasting for the past two years is finally at hand, and that
will result in a cooling off of the housing market, according to a
consensus of leading housing analysts.

However, remodeling activity is expected to hold up in 2000, as
the nation’s existing housing stock (with roughly 110 million homes
over 20 years old) continues to age, and an emphasis on urban
rehabilitation continues to surge, those same analysts predict.

Panelists at the National Association of Home Builders
Construction Forecast Conference in late November here agreed that
the housing market reached its peak early in 1999 a period that
NAHB chief economist David Seiders described as a “glowing, almost
economic heaven for the U.S.” However, said Seiders, “an economic
and housing slowdown in 2000 is virtually inevitable,” largely as a
result of moves by the Federal Reserve Board to stave off inflation
by tightening monetary policy by raising interest rates, dampening
consumers’ desires for purchasing new homes.

Conceding that “the best of the inflation news is behind us,”
Maury Harris, chief economist for Paine Webber, said he expected to
see the same rate of inflation this year as in 1999. Higher
interest rates, slower job creation, slower productivity and a
weaker stock market will slow economic growth “to a more
sustainable pace.”

Among the key economic and industry-related barometers forecast
for 2000 are the following:

  •  Total housing production for 2000 is being forecast by
    the NAHB at 1.535 million units, a 7.5% decline from last
    year.
  • Similarly, the market for existing-home sales, which reached a
    record level of nearly 5.2 million units in 1999, is also expected
    to weaken in 2000, according to the National Association of
    Realtors, which says that “recent volatility in the stock market,
    waning consumer confidence and fears of inflation will serve as a
    check to home sales in the future.” The Washington, DC-based NAR is
    forecasting that existing-home sales will dip in 2000 to just below
    5 million units.
  • In contrast, U.S. expenditures for residential improvements and
    repairs will amount to $128.4 billion this year up from the
    estimated $126.7 billion spent in 1999.n Mortgage rates, now about
    8% for fixed-rate mortgages, are expected to remain close to
    current levels for the foreseeable future.

The current economic recovery, at about 103 months, is far
longer than the average recovery length since 1945 of 50 months.
Analysts point out that the recent housing expansion is the longest
on record and it still has a considerable distance to go before it
sputters out. So even with an economic slowdown looming, the
housing market should remain historically strong. “We are backing
away from record levels of activity,” observed Michael Moran, chief
economist for Daiwa Securities America, “[but] we will still have
good results [in 2000].”The reason is that underlying factors
fueling market growth remain strong specifically, growth in
employment and household wealth that has led to all-time-high
levels of consumer confidence, which have overwhelmed the recent
rise in mortgage rates.

Regional trends
Opinions vary about regional trends in the housing and remodeling
markets (see related story, Page 8). “The Southwest is booming,
[but] growth has slowed in the Northwest,” with the South’s strong
expansion being driven by “a steady influx of population,” notes
KCMA executive v.p. Dick Titus. “The Midwest faces labor shortages
and weak export markets for agricultural products, while the
Northeast’s economic prospects are limited by a sluggish population
growth.”

Economist Thomas Loy points to the Southeast as a rapid growth
area, with the Northeast and Mid-Atlantic region displaying slower
growth, while economist Kory Bockman predicts more of a shift to
the South and the West.

However, Rhonda Moritz, a spokesperson for the National Kitchen
& Bath Association, points out that the Northeast is a hot
remodeling market, largely because it contains more older housing
that requires work. This underlines what many analysts have
identified as a major trend toward reinvestment and rehabilitation
in formerly dilapidated urban areas.

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