Housing: A Bit Better

Housing is one of the keys to the U.S. economy, because its fortunes affect the sales of lumber, steel, furniture, appliances and many other products. For the past two years, it also has been just about the sickest of all American industries. Last week it finally began flashing signals of a recovery, albeit a modest, slow and uneven one.

In May the number of housing starts rose 14% from April, to an annual rate of 1,126,000. That was the first significant upturn after a shocking plunge. From an annual rate of about 2.4 million in 1972, housing starts had nose-dived to a yearly pace of only 880,000 by last December; in the first four months of 1975, starts stayed flat at a bit below 1 million. Carla Hills, Secretary of Housing and Urban Development, said that the May figures "seem to indicate that a recovery is under way."

Checkered Upturn. Building experts quickly added: Not much of a recovery. The May rate, though the highest in eight months, was the lowest for any May in 28 years. In addition, the pattern of the upturn is highly checkered. Single-family home construction is picking up on the Pacific Coast and throughout the Midwest, but in the Midwest, at least, the market for apartment buildings remains slack. In the South the recovery has not been felt at all.

Still, some upturn is better than no upturn: housing is at least ceasing to be a drag on the national economy. The budding upturn will probably reinforce President Ford's determination to veto this week an "emergency" housing bill passed by Congress two weeks ago. The bill was designed to encourage the building of 400,000 new houses mainly by providing mortgage subsidies to middle-income home buyers. But it probably would have no effect until well after the slump was ended.

Lofty Rates. Economists expect housing starts to increase to an annual rate of about 1.4 million by year's end. Mortgage money is now plentiful, and the national average interest rate on single-family home loans inched down in May for the fifth consecutive month, to 8.9%, from 8.96% in April. But in many areas, notably the Southeast and the West Coast, the rate hovers above 9% and is not likely to drop much as long as interest rates on competing investments, like corporate bonds, stay high. Hence prospective home buyers have little reason to wait, since prices are sure to rise and interest rates to remain lofty.

Other economic indicators released last week showed a similar mixed and hesitant pattern. Industrial production continued to fall in May for the eighth consecutive month. But the rate of decline--only .3%--was the same low figure as in April, suggesting that the recession is ending. Personal income, a buoyant factor that has been rising for six months, scored its biggest monthly increase since last September.

The battle against inflation also continues to progress well. Despite markedly higher meat and gasoline costs, the consumer price index showed only a slight .4% increase in May, holding the annual inflation rate to a manageable 4.8%. The combination of higher personal income and a moderate rate of inflation means that real consumer purchasing power is rising. That is likely to lead to an increase in consumer buying, which will be the major factor in lifting the economy in the months ahead.

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