The Washington area housing industry will not escape the effects of higher interest rates and buyer fears of a weakening economy in 1988, but the impact here should be less severe than in most areas of the country, according to industry analysts.
The area's highly paid work force -- with a 1987 average household income of $56,700 -- and stable economy will continue to provide plenty of buyers, and price increases are expected to continue in 1988, analysts said.
Since the stock market plunge last October, however, "I think people are being a little more careful about their housing dollars," said David Strachan, executive director of the D.C. Association of Realtors.
Price levels and demand will vary within the metropolitan area, with the real estate industry looking for listings in some areas, especially in the District of Columbia, where there is little housing construction in progress and fewer homes are available for sale than in past years. Houses in the $200,000-to-$250,000 price range "are gone almost before they show up" for sale in the city, Strachan said.
"After several years of high production, it may be harder to market houses" this year, said Anthony Downs, a Brookings Institution economist. Because of traffic congestion in the suburbs, well-designed homes close to the city "will have a strong market in 1988," he said.
Nationally, developers are expected to build fewer houses this year. Industry trade groups are predicting about 1.5 million housing starts in 1988, nearly an 8 percent drop from the 1.6 million starts last year.
Downs believes that housing starts "may be a little lower" than the 1.5 million prediction. But the stock market's problems have had little direct effect on housing outside of New York City, where the financial-services industries laid off large numbers of employees. The effects "eventually may radiate to employees of financial companies outside of New York, but there won't be a big negative impact," Downs said.
Real estate economist Michael Sumichrast, however, predicted a much sharper drop in housing starts, to 1 million, a 33 percent decline since 1986. He said reports of rising interest rates, demographic changes and sales cancellations, along with signs of weakness in the economy, add up to a recession in 1989.
Interest rates dropped right after the Oct. 19 stock market collapse, then bounced back to around the current 10 1/2 percent. Several economists and industry trade groups are predicting that the rate will remain at this level until mid-1988, then rise to around 11 1/2 percent by the end of the year.
"It'll be a little worse interest rate environment than last year but not a sign of big trouble," said Mark H. Obrinsky, a U.S. League of Savings Institutions economist. "I think 1988 will look very much like 1987 in the Washington area -- not the best year, but pretty good."
Washington home prices continued to rise throughout 1987, hitting a median of $111,000 for existing home sales in December, making Washington the ninth most expensive housing market in the country, according to John Tucillo, chief economist for the National Association of Realtors.
Tucillo said existing home prices throughout the country will rise 5 percent in 1988 and new home prices will increase by about 4 percent.
The price escalation will push more young, first-time buyers out of the market. "Move-up" buyers, older homeowners looking for their second or third homes, make up an increasing proportion of Washington purchasers.
The average monthly mortgage payment, including taxes and insurance, for new homes in the Washington area rose to $1,413 in 1987, the fourth straight yearly increase, according to U.S. Housing Markets, a newsletter published by a Dallas mortgage banking firm. The figure is based on payments on a 30 year, fixed-rate mortgage on a home costing $175,300, the Washington average. Payments for an existing home averaged $1,257.31 last year, according to the report.
A "significant increase in land prices" is a major factor in higher housing costs, according to Dwight Schar, chairman of NVRyan Homes, the area's largest residential builder. Fairfax County lots that cost $30,000 two years ago now are priced at twice that amount, chiefly because of the growing shortage of undeveloped land close to the city, he said.
Last year was "reasonably stable" for the housing industry and marked by a transition to more construction farther away from the city than in the past, Schar said. He expects another good year in 1988 "although demand may be lessening" in the metropolitan area.
Apartments are the weakest sector of the housing market -- with a vacancy rate nationally of more than 8 percent -- after several years of overbuilding.