Home building expected to continue its slide next year

Home Channel News, Nov 20, 2000 by Elizabeth Consavage

WASHINGTON -- This year's economy, oil prices, the presidential election and currency markets have impacted the home-building industry, which will probably go through a less-than-stellar 2001 before it rebounds in 2002.

Analysts at the National Association of Home Builders' Construction Forecast Conference here said that a strong economy led to gains in the industry in 2000, but they expect a downturn in 2001.

"Next year is going to be an okay year, not a great year but not terrible either," said PaineWebber's chief economist Maury Harris. "I don't see any real kind of disaster on the horizon. There will be growth, but nothing above or below average."

Harris was one of nearly a dozen analysts to forecast next year's home-building industry during the day-long conference that was attended by about 200 home builders, manufacturers and other industry officials.

Next year is not expected to bring the same profits home builders saw in 2000 because of a slowing in the overall economy, Harris said.

On the other hand, David Seiders, NAHB's chief economist, noted that the economy had been growing above trend, threatening an inflation problem and an even tighter labor market.

"As the economy has expanded, the inflation rate has been moving down," he said, adding that economic issues have done little to defuse consumer confidence. "It's an optimistic situation and one that is a solid foundation for the economy."

Analysts predicted economic growth between 3 percent and (optimistically) 4 percent in 2001.

The weakness of the Euro against the American dollar this year has been a drag on manufacturers, but that weakness is not expected to continue. Analysts predicted a decrease in oil prices next year and no major fluctuation in mortgage rates from the 7.8- to 8-percent average.

But even with high oil prices and a tumultuous stock market, consumer spending has been remarkably high this year, Harris said.

"If expectations haven't changed radically in the economy, then behaviors won't change dramatically," predicted Michael Moran of Daiwa Securities America, who nevertheless estimated that single-family housing starts would fall below 1.15 million units next year.

The housing market is now in a downslide even though productivity has been up 5 percent this year. Single-family starts have been higher recently, and mobile home numbers, rising from 1995 to 1998, are now lower. But an explosion of multi-family home starts in the 1980s led to an increase in the overall housing market that probably will never be seen again.

The 1990s were a terrific decade for housing, said William Apgar, U.S. Assistant Secretary for Housing/Federal Housing Commissioner. "It's not just homeownership, it's the type of homeowners we're getting into housing," he said. "if we're going to continue this prosperity, we have to be good stewards of our economy. We need support of housing policy to make good use of the economy."

The Department of Housing and Urban Development recently reported that 67.7 percent of adult Americans now own their own home, the highest level in the country's history. About 73 percent of white Americans and 47 percent of black Americans own homes. Seiders said that blacks and Hispanics (also below 50 percent) were good targets for growth in the home-building market.

The market has been affected positively by price deflation on lumber, insulation and steel studs -- a benefit to homeowners and builders, but a hit to manufacturers and dealers.

Remodeling strong

NAHB expects the remodeling market to "hold together pretty well," Seiders said. Remodeling, in fact, could be a stronger business option for builders facing opposition to suburban sprawl.

Architect Barry Berkus, founder and president of Santa Barbara, Calif.-based Berkus Design Studio and B3 Architects, said that attitudes across the country, and especially on the West Coast, are moving against growth and sprawl. Communities and consumer groups are pushing for limits on building to stop congestion, save open space and protect wetlands and natural habitats.

Many communities are seeing an inward trend, with residents moving back into cities rather than outlying suburbs. More of Bekus' designs include homes with large living spaces and dedicated work areas. Homeowners, he said, are looking for more character than the could find in the housing subdivisions of the 1950s.

"The answer is to craft, to create better places," he said. "People are saying no more communities that are not sustainable visually. The idea of building new spaces is something you should all focus on."

He suggested that home builders work to support their local educational systems because people will move away from communities with poor schools. "If we can make it a better place to live," Berkus said, "people will move to it instead of sprawling out."

Family size declines, home size doubles

WASHINGTON--Even as families get smaller, homeowners are demanding more in their houses.

Over the past 30 years, family sizes have declined but the size of the average home has doubled, said Gopal Ahluwalia, director of research for the National Association of Home Builders. The typical home today costs more than $200,000, has more than 2,000 square feet and 2-1/2 bathrooms.