With unsold homes dotting the landscape, it seems hard to believe. But housing specialists say a serious shortage of new homes could be looming for many of the nation's markets -- including the Baltimore region -- in 1992.
That's because money-short builders and developers now have so few units in the pipeline that when the recession eases, they won't be able to keep up with demand, especially from entry-level buyers.
"The shortage will be generated by low mortgage rates, which will stoke demand, and the economy, which will grope its way to tTC recovery," said John Tuccillo, chief economist for the Washington-based National Association of Realtors.
While his group believes demand for new single-family homes in the United States will reach 1.5 million units in 1992, just 1.1 million will be produced, Mr. Tuccillo predicted. The shortage of new housing will hit the Baltimore-area market by midyear and the Washington suburbs of Maryland by late 1992, he said.
Mr. Tuccillo's assessment is shared by many in the real estate field.
"The irony is that as the recession lifts and people are able to afford new homes, there won't be enough to go around," says Arthur Davis 3rd, president of Chase Fitzgerald, a
Baltimore-based realty firm.
A new home shortage could have several implications for the Maryland market. It could lift prices but also frustrate that segment of the market that will purchase only a new home.
"There are some people who won't buy any house where anyone has ever taken a bath in the bathtub before," said Mary Bell Grempler, president of Grempler Realty Inc., a Towson-based chain.
Housing specialists say tight bank credit is the main reason why construction of detached homes and town houses has fallen to such low levels in the last two years. Developers need bank financing to buy land and prepare lots. And builders need construction financing to put up the new homes.
"Builders have really been hurting from the federal government's rules and regulations on the banks. Unless banks change their philosophy, the whole building industry will go away," Ms. Grempler said.
"There's so little financing that what inventory you had has been pretty much taken up," said David Webb, head of the real estate group of Merrill Lynch & Co. in New York.
Even though new home construction has dropped substantially, the slowdown hasn't been a problem to date because the recession has kept a damper on demand, housing specialists say.
But as the economy improves -- and many economists believe that will happen in mid- to late 1992 -- the shortfall in new home construction will become apparent, they contend.
"We're clearly underbuilding for our total housing requirements in this country," says Lynn Michaelis, chief economist for Weyerhaeuser Corp., a national homebuilding and building materials company that is based in Tacoma, Wash.
Taking into account both detached homes and town houses, the United States is now producing 300,000 to 400,000 fewer housing units than it normally needs per year to meet demand, Mr. Michaelis said. "The underbuild problem will become more and more evident in late 1992 and 1993," he said.
Many associated with the realty industry have a hard time picturing any sort of home shortage. Although mortgage rates have fallen to their lowest levels in 14 years, demand is generally weak, and the inventory of resale properties has grown. In Southern California, for instance, thousands of unsold homes languish on the market.
But once the economy strengthens and demand picks up, "the resale properties will get sopped up real fast," Mr. Michaelis said. Unless the banks ease credit restraints that have inhibited the ability of developers to create new building lots for builders, "we could really start to see a single-family squeeze by 1993," he said.
Although a builder can put up new homes in a matter of months, the full development cycle -- from land acquisition to home completion -- can take as long as two years, noted Eugene Gallagher, principal broker of ERA-Gallagher & Co. in Bethesda.
The process can take even longer in suburban jurisdictions with tight land controls, "where the developer must go through the tortuous path of government approvals," Mr. Gallagher said.
In making predictions, some housing specialists caution that assumptions about future new home shortages are very much based on the belief that economic recovery will occur in 1992.
"The big thing we have to be concerned about is consumer confidence," said Frank Miamo, executive vice president of the Home Builders Association of Maryland.
The number of new households that will be formed after the recovery occurs also is an open question that will affect demand for new homes, said Dean Crist, a research economist at the National Association of Home Builders in Washington.
A shortage in new housing would prove a double-edged sword, said Mr. Tuccillo, the National Association of Realtors' economist.
On the one hand, he said a shortage of new homes would please sellers by raising the value of all residential properties. In the "relatively strong" Baltimore-area market, for instance, a new home shortage could mean average appreciation of 5 percent to 5 1/2 percent in 1992, he predicted.
It's likely that, should a shortage occur locally, it would not affect the higher-priced segment, Ms. Grempler said. That's because there's a large oversupply of costly homes and exceptionally weak demand for these properties -- especially for residences costing more than $500,000, she said.
On the other hand, she said that many entry-level buyers could be thwarted by a shortage of new homes they can afford.
In the Baltimore area, those that would be particularly affected by the shortfall would be "first-time buyers who want that nice little town house in the $125,000-to-$140,000 range," according to Ms. Grempler.