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Monthly Newsletter for Housing Leaders I I I I I I I I I I I I I I March 1985 Housing starts and sales had been below many economists' expectations because buyers were waiting to see how Iow mortgage rates would go. "Once it becomes more clear that mortgage rates have reached the bottom, housing activity in the first and second quarters ought to be very strong," said David Berson, chief financial economist at Wharton Economet- rics. If interest rates continue to decline in 1985, the beneficiaries will not only be first-time home buyers, but also borrowers with adjustable rate loans. John Zellars, chairman of the U.S. League of Savings Institutions, estimates 1985 interest rates at 10.25 percent to 10.5 percent for ARMS and 13 percent for 30-year fixed rate. If Congress cuts the Federal debt by $50 to $60 billion, interest rates willremain where they are or come down slightly, according to Dr. Michael Sumichrast, chief economist for the National Association of Home Builders. Three former chairmen of the Council of Economic Advisers, Martin Feldstein, Alan Greenspan and Charles Schultze, all favor Senator Robert Dole's (R-Kansas) across-the-board spending freeze to reduce the deficit. There was upbeat news from the National Association of Home Builders Convention in Houston. Ingrid Sundstrom, reporter for the Minneapolis Star & Tribune, reported that the '84 recovery helped Minnesota Builders reconstruct optimism. The building industry is confident that 1985 will be a very good year. The National Association of Home Builders now predicts 1.64 million starts. 1986 will probably see 1.5-1.6 million starts. Builders will try to hold costs down this year. One expert predicts that new home prices will only rise moderately, just keeping pace with inflation. Professional remodeling activity is expected to increase by nearly 9 percent in 1985, after an even larger increase in 1984. All of the expected increase will be for replacing kitchens, bathrooms and other major structural components. Energy prices, which exacerbated the housing affordability crisis in the late 1970's and early 1980% are increasing more slowly today than in recent years. In 1985, it's possible that they could increase more slowly than the inflation rate. The Energy Information Administration forecasts that residential natural gas prices will increase only to $6.23 per thousand cubic feet from $6.08 in 1984. New housing demand in the area will average about 14,360 units annually during the 1984-90 period. The bulk of the demand for housing, some 72 percent, will take place in Hennepin and Ramsey counties. Within Hennepin, Minneapolis will account for 42 percent of the demand. St. Paul will account for 59 percent of Ramsey County's housing needs, according to Minnesota Real Estate Journal.