A gradual decline in interest rates to about 13 percent by the end of the year will spur a general recovery in Washington-area housing construction, a New York economist predicts. However, Citibank vice president William W. Garretson added last week, "there won't be a significant pick-up" until consumer attitudes about the flagging economy recover.

"We're dealing with people's expectations," said Garretson, who specializes in housing and construction forecasts for the Manhattan-based banking conglomerate. Most consumers "have been acting like inflation won't go down," he said, and thus have avoided long-term commitments such as mortagage loans.

"There's a lot of fear in the housing market. People haven't been sure that inflation rates won't increase 5 percent over the next five months," Garretson said. But as economic "volatility is damped" by a down-trend of interest rates, lenders and prospective buyers "will shift their views," he predicted, resulting in increased home sales.

The nation's housing industry has been devasted by inflated prices and soaring interest rates, he said, adding that housing starts fell to about 16,000 in 1981 from 20,000 in 1980 in the region that includes five Virginia counties, three in Maryland and the District. "Sales will continue to languish" until interest rates return to affordable levels, he said.

Interest already has begun to slide down, he said, because the high cost of loans has caused a "lack of demand for funds." Rates as high as 17 percent have made mortgage loans too expensive for most home buyers, he said, noting that businesses have been borrowing to finance current inventories--not to build or buy.

Garretson sees income as a key factor affecting buyer attitudes. "Income growth has been very slow," he said, adding that real income growth has dropped due to inflation. While per capita income in the Washington area is 30 percent above national levels, he said, "real per capita income is lower now than three years ago."

He said the 10 percent cut in withholding taxes this summer will be "a little boost" for consumer spending.

The effects of federal budget cutbacks and employment reductions on construction are reflected in a 2 1/2 percent increase in unemployment in the District from 1979 to late 1981, double the average increase for all East Coast states, Garretson said. Nevertheless, the Washington region has maintained a below-average unemployment rate--due in part to the lack of a cyclical manufacturing industry, but also because commercial construction has not slowed dramatically, he said.

In addition, housing activity here fell less than 30 percent from its 1977 peak, while nationwide, it fell nearly 50 percent, Garretson said. Housing construction in metropolitan Washington should be back to rates of about 25,000 units per year by the end of 1983, he said.

The trend of converting rental properties to ownership will continue in urban areas, he predicted, providing a growing proportion of America's "new" housing during the 1980s. "There is an excellent housing stock" of older, basically sound buildings in the District that is ripe for rehabilitation and conversion, he said.

Although nonresidential building has remained strong in the Washington area, it won't fare as well this year due to the effect cutbacks in federal spending will have on public construction, said Garretson. He predicts substantial declines in construction of government facilities, schools and subsidized housing projects throughout the nation.

While slackened space demands by government-related industry will cause a drop in office construction in the District, "it is not expected to collapse," he said.

"If the federal government is successful in cutting the size of the budget, growth trends of employment may fall," which would lower demand for office space, said Garretson. But he expects smaller federal reductions-in-force during the next few years, and fewer spending cuts.

"You're not going to see a significant long-term drop in federal employment," he said, because "the earliest cuts are the easiest to get." The flattening of the area's general employment growth and the lowered demand for office space "won't be that great," he said. "Washington is not going to feel too significant an impact."

Population growth in the Washington area fell to 5 percent during the 1970s from a 39 percent rise in the 1960s, Garretson said. Although he foresees only 3 percent growth for the area between 1980 and 1985 compared to a 6 percent national increase, he predicted that above-average employment levels will prevail here.

Garretson predicts a "good future" for the region and "a growth rate that will be steadier than that of the U.S." The area's economic base will broaden "so that it is less directly reliant on the federal government," he added.