Like a country town bypassed by the new freeway, the housing market has been left behind in the sporadic pieces of good news on the economy this year.
The housing industry remains mired in the longest and deepest slump ever recorded, construction and sales having plunged continually for 33 months, mainly because of intractably high interest rates.
The impact of this period will last even longer. It will leave indelible marks on the market, affecting the typical home of the '80s as well as the industries that sell and finance it.
House prices in nominal terms have continued to climb, but when inflation and seller financing discounts are taken into account, prices actually have undergone their first drop since the Depression.
Most analysts are saying the market is at its bottom and that a slow, arduous recovery should start any time. But such forecasts invariably assume that interest rates finally will begin a long-anticipated decline, which in turn is pegged largely to an improvement in the economy generally and inflation particularly. And even when rates do start to fall, it is expected to take them some time to descend from their relatively high levels.
"As long as interest rates are up, there is not much we can do" to provide affordable housing, said Los Angeles lawyer William McKenna, who chairs the president's commission on housing. "The only answer is to stabilize the economy. There is no other answer."
Even if housing begins to crawl toward recovery, however, the shape of the industry -- and the financial institutions that support it -- is likely to be changed permanently by the three-year slide, government and industry analysts say.
So will homeowners' attitudes and the kinds of housing people will build and buy in the next decade.
Homes will be simpler, mortgages more complex. Floor space will be smaller, real estate brokerages and construction firms larger.
Donald Hovde, undersecretary of Housing and Urban Development, predicts that the housing industry in the 1980s will have to streamline its product for efficiency, much as the auto industry has been forced to do.
"We deplored Detroit for producing gas guzzlers, but in many markets that's what we're getting in housing," Hovde said.
"In the 1950s, it was Cape Cods and bungalows; in the '60s it was split levels; in the '70s, two-story 'Cadillacs' came on the market. Now in the '80s, we will go to a smaller product line," including more rowhouses, town houses and condominiums, he predicted.
While the types of housing are changing, so are the kinds of financing instruments that mortgage lenders, builders, real estate agents and home sellers have had to use so people will buy.
The conventional, fixed-rate mortgage is rapidly being replaced by a menu of "creative financing" tools that might have been designed by Rube Goldberg. Currently, for example, about 50 percent of all homes being sold involve seller financing of some kind. And while the new methods are largely a response to interest rate levels that are presumed to be temporary, the latest financing techniques probably are here to stay.
"I think there is a place for innovative financing through the '80s," said Gordon Luce, board chairman of the San Diego Federal Savings & Loan Association and chairman of the private-sector financing committee of the president's housing commission. Mortgage lenders "have been burned too badly" by fixed rates, so variable rates seem to be the way to finance in the future, he added.
Therefore, in addition to developing a new, more efficient type of housing to suit the market, industry members will have to compete with each other on the kinds of financing tools they can offer.
"It's not just thermopane windows now. You have to have 10 kinds of financing plans to offer the buyer," said Peter Treadway, chief economist at the Federal National Mortgage Association (Fannie Mae).
Buyers will have to be more sophisticated, too, he warned: "You can recommend to your readers that they all get a Ph.D in math."
This financing complexity will add to the problems of the smaller real estate firms, developers and builders that are being hit hardest by the prolonged slump. Many of these may go out of business, while the larger firms will have the resources to hang on and grow stronger, industry and government analysts say.
"The strong always survive," said HUD Assistant Secretary for Housing Philip Winn, who formerly headed his own development company. "It's very tough. Builders have heavy construction loans. How long they can hold on I don't know."
Herman Smith of Fort Worth, president of the National Association of Home Builders, said business failures among builders already are up 40 percent this year over last, also a dismal year for the industry. While firms of all types and sizes are getting clobbered, the smaller ones are likely to go under first, he added. The net result would be fewer and larger building firms once the market revives.
Real estate agencies also have suffered. Membership in the National Association of Realtors has dropped 10 percent during the slump, NAR chief economist Jack Carlson noted, but he added that many have been able to sell their services because of the need for sophisticated financing planning.
"Realtors have survived by helping people to find ways to finance their homes, while S&Ls have been standing mute" because of their own problems, he contended.
HUD Undersecretary Hovde, a former NAR president, predicted that the trend in the real estate business will be to national franchises, larger locally owned companies and regionally owned firms.
The depth of the slump can be seen in a number of startling statistics:
Realtors association figures show home resales down 32 percent from the prerecession years of 1978 and 1979, now at an annual rate of about 2.3 million this year. In the previous tight-money period, 1973-75, the dollar volume of sales lost were estimated at $27 billion; in the 1979-81 period, the estimated loss is $162 billion.
The Commerce Department reported that sales of new houses in July were at a 420,000 annual rate, less than half the peak rate of 900,000 in October 1978.
Housing starts are expected to be at their lowest level since World War II. Starts in August were at a 937,000 annual rate, the lowest in more than five years, and starts of new single-family homes were at an all-time low. The home builders association predicts 1.1 million starts this year, enough to fill about half the country's estimated need.
Unemployment among construction workers was at 15 percent in July, more than double the national rate.
Median sales prices have continued to rise steadily -- at least before inflation and sellers' financial-assistance costs are taken into account. The median price of a new house in July was $69,800; the resale median was $67,500. With inflation and sellers' costs factored in, however, real prices have dropped by between 2 and 9 percent, NAR's Carlson estimates.
Mortgage interest rates, meanwhile, have soared to around 17 to 17 1/2 percent, putting the average-priced house out of the reach of 90 percent of all first-time buyers, according to builder, real estate and home lending groups.
As an example, a $100,000 mortgage would entail a monthly payment of $877 at 10 percent interest; the payment would jump to $1,425 at a 17 percent rate.
Faced with these interest rates, many potential buyers are staying out of the market and others have lowered their expectations. Sellers are having to help with financing or come down on price for a quicker sale. Some have resorted to other creative selling techniques, including raffling off their houses.
More unrelated people are beginning to buy homes together to split the mortgage costs, and builders are starting to design more dwellings with such "minglers" in mind.
At the same time, industry analysts say, the current situation has resulted in a great pent-up demand that will get the market moving again and keep prices high once interest rates start to fall. "There was never a time in recent history when demand was so high and construction so low," HUD's Winn said.
But Winn also warns against focusing too much attention on average nationwide figures, noting that the housing situation varies widely by region and city.
In the Washington area, for example, real estate agents and builders appear to be faring better than in the nation as a whole, though business is down, according to housing industry members.
For the long term, most housing experts pin the main solution on an improved economy with reduced inflation and lower interest rates. But there is a basic economic Catch-22 here, also: The Federal Reserve Board, in trying to cool inflation, is relying largely on tight-money policies, which result in higher interest rates. The Fed has shown no sign of loosening its money controls, but most economists are predicting at least a gradual reduction of rates, starting by the end of the year, as inflation begins to moderate.
Another major requisite for recovery is the restoration of the health of home financing institutions, particularly S&Ls. All Savers certificates, approved as part of this year's tax bill, are an attempt to give a substantial boost to the S&Ls by helping them raise more funds for mortgage lending. Realtors and builders have put much faith in the tax-exempt certificates as a way of making more mortgage money available, and look to their advent in October with high hopes.
The administration accepted the All Savers idea only reluctantly, and in general wants the private sector to take as large a role as possible in reviving the housing market. This will mean fewer government subsidies of housing, less regulation and focusing on the economy as a whole.
HUD Undersecretary Hovde underscores the administration's opposition to intervening in the marketplace or rerouting capital toward the bypassed housing industry:
"The major effort is to reduce inflation. That is the only way to make [housing] affordable."