"It's too hot not to cool down," a line from an old popular song may be accurately descriptive of today's housing market.
But will a "cool-down" really occur? When? How drastically? And will it affect you and me?
In the order of asking, the consensus answers are: (1) Yes; (2) It's already under way; (3) moderately here but sharply in some parts of the nation, and (4) only if you're planning to sell without rebuying. (In fact, any slowdown of a hot market benefits buyers if they have confidence to act.)
By way of explanation, the nation's new and resale housing markets already are slowing slightly from the go-go pace of 1977-78. Indeed both new house sales and existing house resales -- and particularly the prices -- have been too high not to ease down. Don't expect prices of houses to fall in the metropolitan D.C. area, however. Rather, the rate of increase will be stifled.
To date, the housing market shows no sign of collapsing here, but the long-term honeymoon may be over.
The question is basically and nearly unanimously: Will the local market revert to normal? And an experienced observer would add: What is normal?
On a short-term basis, it is likely that housing prices will revert to a 5-10 percent annual rate of increase, which was considered normal here until the 1970s. The annual rate of appreciation and new home prices exceeded the 10 percent range in the past decade.
If you like certainties, here are two: (1) New home starts across the land will be substantially less than last year's 2 million and (2) total numbers of resales will be less than the record 3.9 million last year. But those figures aren't as pessimistic as they sound, because starts in 1979 are likely to exceed 1.6 million and may even hit 1.7 million -- above the national average over a 10-year period. Resales probably will be well above the annual average for the 1970s.
Then why all the recently printed and spoken gloom-doom appraisals of the U.S. housing markets?
Much of the explanation can be gathered from other economic news of rising interest reates and a slowdown in economic growth indicators. In housing, mortgage interest rate increases to an effective level of 11 1/2 percent or more for conventional loans and a shortage of lendable funds at most savings and loan institutions, combined with record-high prices of new and resale houses, have blunted the public appetite for residential property purchases.
To get back to the original premise in the old song, both the public appetite and the selling prices have become "too hot not to cool down" -- at least somewhat.
Total public response in a given market is really a composite of individually made personal decisions. No evidence indicates that the public is sated with investments in residential properties. But the ability to make those investments is curtailed by both high price levels and long-term financing costs. Some softness in the buying market indicates that prices will moderate and that mortgage interest rates are peaking or soon will. And, if a general economic recession takes hold next year, housing prices and interest rates are likely to fall moderately in most areas.
On one hand, economist Michael Sumichrast of the National Association of Home Builders will tell you that current soundings indicate that "the downturn in new housing starts and sales will be deeper and last longer than we had anticipated several months ago." But he quickly adds that the housing recession is not likely to be as calamitous as that experienced in 1975-76, when housing starts fell briefly below the one million level on an annual basis and existing houses waited longer for buyers who could pay less -- if they could obtain financing.
Because many of them live here, housing industry professionals recognize the consistently ebullient tempo of this housing market. Ever increasing, record-high prices failed to discourage buyers in the past three years. Total area-wide housing starts are likely to fall slightly to the 21,000 level this year. But the percentage of decrease will be relatively minor in contrast to an area such as Houston, which is expected to fall far below its recent prace of 50,000 new dwellings annually.
From another trade association viewpoint, Jack Carlson (who recently joined the National Association of Realtors as economist-executive) takes a national look and sees existing home sales falling to the 3.7 million range in 1979, which would be second only to the 3.9 million units resold in 1978. Carlson agrees with home building association leaders that new housing units will fall substantially this year to the 1.5-1.6-million range. But he sees new home starts rebounding to the 2-million range by the end of 1980.
Mainly because of demographics -- the maturity of the World War II babies and the proliferation of individual households due primarily to general affluence and divorces -- all forms of ownership housing are expected to flower in the 1980s. Condominium ownership already has established itself as an estimated 20 percent of the total Washington area ownership housing market. And both condo and cooperative apartment ownerships are expected to increase among all stratas of people whose economic viability is in range of that status.
Washington realtor Edmund C. Flynn, whose experience with co-op ownership goes back at least 30 years, said recently that a disposition among lenders to make loans to co-op purchasers (with the property pledged as security) will make co-op apartments -- and there are at least 4,000 in this area -- easier to buy and sell and also eventually will enable more low-medium-income persons and families to become owners.
"I really pushed American Security & Trust to pioneer in co-op apartment loans for resales at Harbor Square in Southwest and it now is likely that a start will be made in that field," Flynn said.
Traditionally, the total cooperative apartment complex has a long-term mortgage and individual buyers obtain their own personal financing to achieve a piece of total ownership and the right to occupy an individual unit without benefit of individual mortgage, deed and tax bill. Thus, as individual units increase in value, it takes increasingly more immediate cash to buy into a co-op apartment.
Another area of promise for persons and families to become homeowners for the first time is the acceptance of what is called the graduated payment mortgage. Essentially, it enables the buyer to pay less in early years of the mortgage and then pay more as income increases. The Federal Housing Administration already is providing GPMs.
Max Karl, chairman of the Mortgage Guaranty Insurance Corp., said recently that a study showed that 2.5 million more American households could qualify for home ownership when GPMs are fully utilized by the housing industry.
In summary, the total housing market alsmost defies analysis due to churning, churlish aspects of the total economy, the energy crisis and the fight against inflation. But prophets of gloom recently prompted a strong response from Warren E. Mulcock, the Salt Lake Citian who is president of the National Association of Independent Fee Appraisers:
"Any kind of crisis that could lead to a crash in real estate would be observed and steps taken (to counteract it) long before it could reach a dangerous level. That's because banks are generally fully aware of any surplus of unsold homes in their loan inventory. They already are taking fewer commitments on new housing, which indicates they do see overbuilding in some areas."