Gains for Residential Construction Could Strengthen Lending This Year

By Mensheha, Mark | American Banker, January 20, 1994 | Go to article overview

Gains for Residential Construction Could Strengthen Lending This Year


Mensheha, Mark, American Banker


WASHINGTON -- Mortgage bankers could thrive in 1994 if predictions of near-record activity in housing markets by the National Association of Realtors are accurate.

According to John Tuccillo, chief economist for the trade group, banks geared up to lend to construction industry in 1993, which may translate into an increase in the rate of housing starts this spring, in turn driving the economy.

"It's housing construction, not home sales, that drives the economic growth," Mr. Tuccillo said. "If there is a strong level of housing starts, that will give a real bump to the economy."

Mr. Tuccillo, who is also a senior vice president at NAR, said that despite uncertainty on the outlook for long-term interest rates, the impetus of low, short-term rates for construction loans should continue.

That could mean an even bigger year in residential real estate. Mr. Tuccillo said sales of existing family homes may top 3.9 million in the coming year, while housing starts could approach 1.4 million -- both increases from 1993.

Mr. Tuccillo attributed much of the drop in homeownership rates in the 1980s to a decrease in buying in the 18-35 age group. But the increase in home sales in 1994 will be driven by younger buyers returning to the market, Mr. Tuccillo said.

"These households didn't drop off the face of the earth," he said. "They were closed out of the market by double-digit interest rates and rapidly escalating home prices.

"These people are now older, they've saved their income so they have more money, and interest rates continue to go down. They came back in droves in 1993 and that will continue in 1994."

This impact will be enhanced by younger buyers who feel they can't miss out on the "interest rates of a lifetime," Mr. Tuccillo said.

In the commercial real estate market, Mr. Tuccillo projects a continuation of the present difficulties. Many of the facilities built in the optimism of the 1980s remain vacant today, and improved technology will make these buildings hard to fill, he said.

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Gains for Residential Construction Could Strengthen Lending This Year
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