Homebuilders in the Washington area are curtailing their production plans for 1980 because of a downturn in the market in the last six months.
Warren Pearce, president of MCD Enterprises Inc., which built 380 houses in nine subdivisions last year, said that his company expects to build 10 percent fewer in 1980. He said that the firm's inventory of finished, unsold houses includes only five town houses in Oxon Hill.
"If mortgage financing can be kept under 12 percent, such as the available 11 1/2 percent FHA-VA rate, we look for the market to pick up substantially by summer," Pearce said.
In nearby Maryland and Northern Virginia, where the supply of new houses priced over $125,000 has recently exceeded demand because of high interest rates, most builders expect to curtail production this year by at least 20 percent.Dean Hanson, the new president of the high-volume Yeonas Co., which built 450 houses in 16 subdivisions last year, said the company will cut production by 30 percent this year.
Hanson added that the firm accumulated an inventory of 70 unsold houses in 1979 and has 80 houses under way without specific buyers committed.
"We will concentrate hard on our inventory and also increase energy efficiency and make product changes in the kitchens and master bedrooms of new houses to be started in 1980," Hanson said. "But the real problem is the mortgage market. If rates decline, we'll make the sales."
Spencer Stouffer, marketing specialist with the Miller & Smith Co. in Northern Virginia, said that firm plans to increase its production this year by 50 houses with the opening of two new subdivisions.
Stouffer and other marketing specialists agreed that there was an unexpected resurgence of traffic last Sunday when the sun shone brightly after Saturday's heavy snow.
Generally, the public that stayed away from newhome sites in November and December is expected to return as mortgage rates moderate slightly.
Two-thirds of the sales of new homes are dependent on buyers selling their existing houses. Sluggishness in the resale market followed the rapid rise in interest rates in October and November. Also, sellers showed reluctance to pay more than 3 or 4 discount points for the privilege of getting FHA or VA financing for buyers.
Since the late fall crunch, the mortgage market has stabilized. Now builders and real estate brokers are regaining confidence that buyers will adjust to the cost of financing because prices of new houses are expected to increase 10 percent this year and at least that much more each year in this decade.
Housing starts, which totaled a record 17.8 million in the last decade, are expected to rise to 19 million during the 1980s. But the forecast for this year is for a sharp decline from last year's 1.7 million level to 1.3 million.
Locally, where starts have been declining since 1978, and 1979 total is expected to reach about 19,600 units. Another decline -- about 20 percent -- expected in 1980, to the level of 14,500.
Statistics gathered from federal and local sources by William Young, of the economics department of the National Asociation of Home Builders, also reveal that total private housing starts in the 1970s exceeded the 14.4 million of the 1960s and the 15.1 million of the 1950s.
Housing starts exceeded 2.3 million in 1972 and topped or touched the 2 million level in 1971, 1977 and 1978.
But, if nothing else, the past decade demonstrated the continuing cyclicality of housing and its relationship to available mortgage financing at acceptable rates. For instance, starts jumped from 1.4 million in 1970 to 2 million in 1971 and declined from 2 million in 1973 to 1.3 million in 1974 and then to 1.1 million in 1975, when housing suffered a major depression because mortgage money was expensive and difficult to obtain.
But by 1977, starts were up to the 1.9 million level, as the result of pent-up demand and a recognition that housing values were increasing faster than the rate of inflation.
In this area, starts peaked at 42,200 in 1972 but fell to 9,500 in 1975.
One of the major reasons for the peak housing totals across the nation was the level of multi-family starts which exceeded 1.1 million in 1971, 72 and 73 but tailed off to 268,000 in 1975 and have been around the 500,000 until falling to 424,000 in 1979. In this area, single-family housing starts peaked at 26,000 in 1972 and bottomed at 7,200 in 1975. Locally, apartment construction hit a high of 18,800 units in 1973 and dropped to 2,300 in 1975.
Interest rates were below 8 percent in the peak housing years of 1971-73 and then hit 9 percent level in 1977 and 10 3/4 in 1979. Now conventional interest rates in this area are at 12 1/2 to 13 percent and the FHA-VA rate, which usually costs 3 to 4 discount points (the equivalent of 1/2 percent of the loan amount) to the seller, are at the all-time maximum of 11 1/2 percent.
National statistics also show that the median price of a new house increased 147 percent in the 1970s, from $25,600 in 1969 to $63,200 in 1979. During that same 10-year period, the median sales price of existing houses zoomed 155 percent, from $21,800 to $55,600.
Meanwhile, median family income increased 103 percent, from $9,433 to $19,136. The rate of increase in the consumer price index during the 10-year span was 98 percent.
In terms of size, the median square foot of livable area in new homes was 1,530 in 1969 and declined to 1,375 square feet in 1971 before rising slowly through the remainder of the decade to 1,673 square feet in 1979.
On one hand, many houses were added on to in the 1970s and on the other, many more small town houses and cluster houses were built in that period for first-time buyers and small households.
Projections for the 1980s made by the homebuilding industry show that large increases are expected in the age groups that buy the most new houses. The 25- to 34-age group is expected to increase by 620,000 annually and the 35- to 64-age group is expected to increase by 1.2 million annually. Both age groups are strong in the homebying market.
Another positive aspect for housing in the 1980s is the rate of household formation, which is expected to grow by 16.2 million to nearly 95 million. The forecast also indicates that the median price of a new detached house will exceed $100,000 by 1985. House prices will continue to increase faster than the average rate of inflation, which is expected to be 7 percent annually in the 1980s.
The forecast on mortgage interest rates indicates a level of 12.26 percent in 1980, a decline of 9.98 percent in 1983 and then a surge to 11.4 percent by 1985 before a gradual decline to around 8.85 percent in 1989. This forecast on mortgage interest rates assumes that the rate of savings in thrift institutions supplying mortgages will increase from present low levels.
However, unless there are some changes in the present long-term mortgage scenario, a number of financing specialists might find it difficult to accept the finding that mortgage rates will average only 10 1/2 percent during the 1980s.