Even as sales decline, demand for houses continues strong.
And that demand is expected to increase throughout the 1980s when people 24 to 34 years old, the prime home-buying population, increases by 5 million to an estimated 41.
At the same time, construction of new homes is declining -- probably by 30 percent this year -- as the cost of borrowing money soars.
Builders are trying to survive all this by holding the price line on unsold and uncompleted houses, despite increasing costs of production. In addition, they are literally "buying down" financing terms for purchasers -- and taking a financial beating -- to keep their businesses going.
Builder-developer Steve Yeonas, who recently has been converting town houses and apartments to condominium ownership, sees the situation as even more critical than in 1966, when he headed the local housing industry's "buy-a-home-now" campaign.
"I can see only higher prices and fewer new homes in the future," Yeonas now says.
"The cost of money is the critical factor. The demand is enormous, but I fear that this fourth housing downturn in 15 years will once again magnify a pent-up demand that will cause another explosion of prices and values as the capacity to produce housing is further eroded.
"The giants of the industry who produced low-cost housing are dwindling. We don't have a MacDonald's or Burger King to satisfy the low-medium-income market."
So what's a person to do? What about those 16 to 17 percent mortgages?
Yeonas advises parents to help their children to buy now -- or to buy ahead for their maturing teenagers.
"There's a lot a below-market financing being advertised," he said. "The discriminating house shopper will find rates offered by good builders that are bargains for long-term, fixed-rate mortgages. We are moving into the era of the renegotiated rate mortgage that may be even more costly to the buyer."
It should be noted that Yeonas is the man who, when his former firm had a large inventory of unsold houses in 1966, said: "There's too much emphasis on gloom." And in 1970, during another downturn, he said: "A house will never cost less than it does now."
Ronald DeLisi, sales director for Kettler Brother Inc., which had declining sales in March after selling 142 houses in January and February, said that S&L mortgage rates at 16 to 17 percent are "artificial because nobody's buying that financing. Builders have to provide it at lower rates that customers can afford. Prices are stable in this market for obvious reasons and they never will be lower."
Homeowners Leavitt and Jean Peterson remember the 1974 housing down cycle. Leavitt, a government engineer, and Jean, a nurse, came here from Pittsburgh with their four children in 1974. Mortgage money was tight and interest rates were close to 11 percent.
"But we had to have a house for our family, which also included my wife's parents," Peterson recalled. "We looked and found a contemporary house we liked for $96,000. It's in the Hunter Mill Road area of Fairfax County.
"The builder had a loan available and he came down on the price to $94,500. We got a good house and I think we actually benefited from the down market. Fortunately, we had sold our house in Pittsburgh without having to sacrifice it."
Peterson said that the four-bedroom, three-bath house would bring more than $150,000 today. "We added a wood-burning stove to use in conjunction with our oil furnace," he said. "Last winter we burned five cords of wood but used only 40 gallons of oil."
Steve Yeonas believes that families will find it increasingly difficult to own large homes in the future. He and Kettler's DeLisi stressed that first-time buyers in the 1980s will have to settle for smaller homes. First-time buyers will have to look to condominium apartments or small town houses and then move up as their equity increases.
"You can't afford to wait," Yeonas said. "You have to get your first foot on the housing ladder as soon as possible if you ever want to make it up to a single house of tomorrow. Federal and local regulations and fees have driven up costs that have to be passed on to buyers."
In the resale market, some buyers are able to acquire homes now by taking advantage of FHA or VA rates. Some sellers are taking back principal mortgage themselves, offering second mortgages, arranging wrap-around financing with existing lenders or using land trusts to delay actual settlement until market mortgage rates are lower.
Because market mortgage rates are currently exorbitant, buyers are not accepting them when available. This decline in demand is expected to result in rate decreases in the latter part of this year.
"Conventional rates are likely to decline to the 12-to-13 percent range by the end of 1980," predicted Thomas Harter, economics director for the Mortgage Bankers Association. That forecast assumes a fairly significant reduction in the rate of inflation and a peaking of the prime borrowing rate in May.
But Harter also warned that a downturn in mortgage rates will be accompanied by another surge in the demand for housing, which will fuel another spiral upward in lending rates.
Porter Wilson, marketing director for Costain Washington, a division of a Toronto-based home building firm, said that sales declined markedly here in March because of the inability of potential buyers to qualify to buy $125,000 to $150,000 Costain houses.
At Burke Center, where 25 builders are doing business, developer Milton Peterson reported record February sales of 116 units, most of which were town houses. The January total was 54 and March sales were down to 59.
Peterson said that the average price being paid by buyers is lower because more of them are choosing the smaller cluster and town houses for which they can qualify. He said that, in order to attract purchasers, some of the builders are putting in escrow the amount of money needed to pay 2 to 3 percent of the high rate structure for two years. They are also promising to pay refinancing charges if rates come down.
Much of the softness in the market seems to be in the range of houses priced from $150,000 to $250,000, where discretionary buyers are choosing to stay put rather than move up this year. There's also some softening in the upper-strata market of homes in Potomac, McLean and Great Falls, where houses often start at $400,000.
But Jeffrey Sneider, who builds for that market, says he has sold three houses in Potomac and one in McLean this spring.
"They buyers are out there," he insists.
Long & Foster Realtors recently completed a study showing that average house resale prices continued to increase since Oct. 1, when federal credit policies began to stifle the housing market. The average price of 823 houses that the firm brokered in September was $78,500. That's when most mortgage rates ranged around 11 1/2 percent. In February, when market rates topped 15 percent, the firm handled the sales of 812 houses for which the average price was $94,471.
Wesley Foster said his staff demonstrated that demand for housing and the inflationary factors are too strong for prices to remain stable.
However, Jack Carlson, executive vice president of the National Association of Realtors, reported that resale housing markets across the nation declined sharply in March.
"On the basis of our survey of 22 metropolitan areas, we estimated that resale activity in March was at a seasonally adjusted annual rate of 2.6 to 2.7 million," he said. The September 1979 level was 3.9 million.
Another sour note came from Joseph King, partner-in-charge of the Washington office of a financial consulting firm working with major builders. He said many of the nation's homebuilders face insolvency this summer if major preventative steps are not taken now.
King, partner in Kenneth Leventhal & Co., said that "all builders are candidates for insolvency" due to high costs of borrowing, mounting inventory of unsold houses and a drying up of the permanent mortgage market "as lenders wait for the rollover (renegotiated rate) mortgages" that are moving into the marketplace.