Fear that the nation's housing industry is losing the privileged position it has occupied over the past 40 years has a few ironic twists.
The U.S. economy, if not booming, is at least moderately healthy, but the housing industry is hurting. Home buying has fallen victim to inflation, which -- ironically -- itself had fueled the desire for homeownership. From 1974 to 1980 the median price of new homes increased 82 percent -- from $37,400 to $67,900 -- but median family incomes failed to keep pace.
The desire of Americans to own their own homes still is unquestioned. However, as the millions of young persons born during the baby boom of the post-World War II years mature and become potential home buyers, even those with moderately good incomes find it difficult to afford a mortgage. The percentage of first-time buyers in the U.S. housing market declined 50 percent from 1977 to 1979. Now less than 10 percent of potential first-time buyers can afford homes. In addition, many repeat buyers who could afford to pay today's high mortgage rates are appalled by the cost and often decide to stay in their present homes rather than moving to better ones.
Mortgage rates, which help to determine the health of the housing market, literally have gone wild in the past 18 months. Compare today's FHA-VA rate ceiling of 14 1/2 percent with the 5 percent to 6 percent range of the 1960s. The fate of the long-term, fixed-rate mortgage hangs in the balance. Such mortgages, pioneered by the FHA, contributed to the doubling of U.S. homeownership from the mid-1930s to the late 1970s. Little wonder that the public is skeptical of new short-term mortgages with fluctuating rates.
Mark J. Riedy, a Mortgage Bankers Association executive says: "The health of the housing industry is tied inextricably to the availability of adequate capital for housing, and the question of how well this nation will be housed in the 1980s will depend on how quickly we develop a national housing policy that deals with this issue."
The Reagan administration plans to solve financial problems for the housing industry and home buyers by curbing inflation without special aid programs. In fact, some cutbacks in existing subsidy programs are being impelmented and there is discussion of plans to put a ceiling on nonsubsidized FHA and VA mortgage loans. Home builders and buyers have been told, in effect, that the economy must cool down before borrowing rates can be lowered.
David E. Stahl, an executive of the National Association of Home Builders, said: "We have a long way to go in setting forth a viable mortgage finance system to replace the traditional system that is now collapsing in disarray." Stahl added that the Reagan administration has a tough task "hammering out an agenda to accommodate the nation's housing and other economic needs . . . without triggering a wild upsurge in inflation."
The NAHB and organized savings and loan associations are pushing for enactment of legislation that would restore some measure of home ownership's preferred borrowing status Mortgage-granting institutions now must compete for investor funds as low-yield passbook savings are decimated by the flow of money to higher-yield funds and investments.
Much of the legislative emphasis is on bills that would produce tax-exempt status for deposit funds specifically earmarked for home mortgages. One plan for large certificates is said to be capable of producing a mortgage rate under 10 percent or 11 percent on the basis of a tax-free return of 8 percent or 9 percent for savers.
In the face of these barriers to housing sales, even the currently depressed levels of new and turnover home sales seem remarkable. New homes are being built at a rate of 1.3 million annually, and existing homes sold at a rate of 2.5 million annually. In 1978 the figures were 2 million and 3.9 million units respectively.
When a panel of housing economists recently reviewed the current depressed residential construction industry, they agreed that ownership affordability would be a problem until inflation returns to the 8 percent range annually. The panel also predicted that new housing starts would be back to 2 million by 1983.
Herman Smith, president of NAHB, estimates that an additional 600,000 new housing starts annually -- bringing housing starts back up almost to the 2 million level -- would generate 860,000 man-hours of work and also decrease outlays for "breadline programs" to offset Treasury losses due to interest exclusions. He said an estimated 4 million families or persons would be eligible for ownership of a $67,000 home -- now the median price nationwide -- if mortgage rates were reduced by 3 percentage points.
Challenges also are being heard about the mounting tax credits enjoyed by high-income owners of expensive first houses and their investments in dwellings that are rented. One suggestion is that a ceiling be legislated on how much total deduction for interest can be taken by any individual or couple. Author Ralph Goetzke recently said: The "current system is producing urban investment sanctuaries for the affluent at the expense of others instead of enough new housing." But he added that the "idea of tinkering with homeowner deductions is still unthinkable to most [owners]."
Attorney Philip N. Brownstein, who served as FHA commissioner during the Kennedy and Johnson administrations, said his main concern today is for the potential first-time home buyer. He views with regret the eventual phasing out of the long-term, fixed-rate mortgage. His main hopes for a future housing industry with affordable financing center on tax-free certificates that would produce lower mortgage rates, and on shared appreciation mortgages for which lenders would provide below-market rates in exchange for a future percentage of the appreciation or the expected gain in the value of the buyer's house.
But Brownstein concedes that more refinement in both approaches to providing more mortgage funds need considerable study and analysis to make certain that they work out equitably for both buyers and investors.
Potential home buyers should recognize that a lower level of mortgage interest rates may be on a variable, adjustable-rate basis, rather than on a long term, fixed basis.
The future of home building, homeownership and home financing thus is becoming increasingly complex.