Amer­ica’s hous­ing in­dus­try now in a ma­jor cri­sis

The Covington News - - Covcrypt - All sto­ries com­plied by Hay­ley Wil­liams.

Five times since the end of World War II, Amer­ica’s hous­ing in­dus­try has skid­ded into a slump.

In the past seven years alone, a slump has oc­curred three times. One of those slumps con­tin­ues to­day and prom­ises to be the worst.

Why can’t some­one come up with some­thing that will pre­vent a re- oc­cur­rence of the hous­ing in­dus­try down­turn?

In the first place, the sit­u­a­tion does not lend it­self to sim­ple so­lu­tions since the causes are not sim­ple, and se­condly, there are so­lu­tions avail­able which in­dus­try lead­ers be­lieve will work if tried, ac­cord­ing to John C. Milliner Jr., Ex­ec­u­tive Vice Pres­i­dent South­east­ern Lum­ber Man­u­fac­tur­ers As­so­ci­a­tion, an as­so­ci­a­tion of 230 lum­ber man­u­fac­tur­ers lo­cated in seven South­east­ern states.

Part of the so­lu­tion is also part of the prob­lem; namely the U. S. Congress. The Congress is seen by many as one of the big vil­lains in the whole eco­nomic mess faced by the coun­try to­day. Be­fore so­lu­tions can be tried, Congress must act on pro­pos­als placed be­fore it.

The hous­ing in­dus­try’s money prob­lems oc­cur on two fronts. The builder needs money to erect struc­tures and the con­sumer needs money to buy the high­est in­ter­est rates in our his­tory.

Main­tain­ing an ad­e­quate com­mer­cial flow of money into the hous­ing mar­ket is di­rectly re­lated to the abil­ity of thrift in­sti­tu­tions to chan­nel funds into mort­gage com­mit­ments. High in­ter­est rates have ac­cel­er­ated “dis­in­ter­me­di­a­tion,” a process which ba­si­cally re­flects a net out­flow of de­posits from sav­ings banks as de­pos­i­tors ob­tain high re­turns on their funds else­where.

This first took place in mid- 1973, and mort­gage money tight­ened ap­pre­cia­bly last sum­mer with the re­sult that hous­ing starts by late 1973 fell to an an­nual rate of about 1.5 mil­lion units. Net with­drawals from sav­ings banks are again re­strict­ing the avail­abil­ity of mort­gage money.

Net with­drawals from sav­ings and loan as­so­ci­a­tions alone dur­ing April were es­ti­mated at $ 335 mil­lion, while more than $ 600 mil­lion moved out of sav­ings banks.

New with­drawals from these in­sti­tu­tions seem likely as long as key in­ter­est rates re­main high. If this does oc­cur, home build­ing this year will prob­a­bly drop to 1.6 mil­lion units or lower.

A num­ber of pro­pos­als have been sug­gested to re­form the fi­nan­cial struc­ture of the econ­omy, so that hous­ing would not be the first to feel the pinch ev­ery time in­ter­est rates rise.

One of the most fre­quently sug­gested poli- cies is to pro­vide an in­cen­tive for peo­ple to put their money in sav­ings and loan as­so­ci­a­tions or other thrift in­sti­tu­tions by way of a tax credit.

For ex­am­ple, if the first $ 750 in in­ter­est earned on mort­gage re­lated in­vest­ments were tax- ex­empt, SLMA be­lieves that peo­ple would take ad­van­tage of this in­duce­ment and this pump more money into the mort­gage lend­ing in­sti­tu­tions.

It is gen­er­ally agreed that Con­gres­sional and White House ac­tions to curb in­fla­tion would also gen­er­ate for the hous­ing in­dus­try.

The Fed­eral Re­serve Board has been at­tempt­ing this alone thus far by at­tempt­ing this alone thus far by slow­ing down the rate at which more is in­jected into the econ­omy.

Most econ­o­mist be­lieve that this is not enough, and that sharp cut­back in fed­eral spend­ing, as al­ready sug­gested by Pres­i­dent Ford, are es­sen­tial. In­dus­try economists have rec­om­mended spe­cial leg­is­la­tion in Congress which would im­ple­ment se­lec­tive con­trol of credit, such as, to cut back on con­sumer credit while con­tin­u­ing to pro­vide mort­gage credit.

An­other sug­ges­tion is a change in the way pay­ments are made — vari­able in­ter­est rates or flex­i­ble pay­ment sched­ules, for ex­am­ple.

Ba­si­cally, a vari­able rate mort­gage per­mits an in­crease or de­crease in the in­ter­est rate, gen­er­ally in re­sponse to changes in some spec­i­fied eco­nomic in­di­ca­tor.

With a flex­i­ble pay­ment sched­ule, the monthly pay­ments in the early years could be less than un­der a stan­dard mort­gage, but would rise af­ter a pe­riod of time in tan­dem with the buyer’s abil­ity to pay. This would make it eas­ier for young peo­ple to pur­chase homes.

In ad­di­tions, a sub­stan­tial in­crease in funds could be made avail­able to the Fed­eral Home Loan Bank Board in or­der for it to pump ad­di­tional money into mort­gage mar­kets, in­clud­ing the pur­chase of funds on the open mar­ket and the re- lend­ing of those funds to the S& L’s at rates a half per­cent be­low the rate paid by the home loan bank.

The Fed­eral Home Loans Bank sys­tem ab­sorbs the dif­fer­ences be­tween the money cost at the two rates, but it gets ad­di­tional funds to the prospec­tive home buyer.

These are by no means the only pro­posed reme­dies to the money prob­lems of the hous­ing in­dus­try, al­though they are im­por­tant. How­ever, these reme­dies are use­less un­less they are acted upon on the fed­eral level.

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