The drop in mortgage rates won't be doing much for the building industry this year, according to U.S. Housing Markets, a research publication from Lomas Mortgage USA, Dallas.
As a result, Lomas is expecting a decline of about 8% as measured by the volume of building permits issued.
A decline in new-home construction not only reduces the demand for mortgages directly but also breaks the chain of home sales and financings.
"This year's environment of lower interest rates contrasts favorably with the rising trend we witnessed last year," said Robert R. Denton, executive vice president of Lomas Financial Group.
"Traditionally, this would give housing a strong lift. But this year, weaker single-family demand and rising consumer fears about local job prospects and economic conditions will keep the lid on new-home sales."
Mr. Denton said he expected home building to undergo the most pronounced cutbacks in the Midwest and on the West Coast, partly because of unusually wet weather that delayed construction.
He added that aerospace and military cutbacks were still having an impact on employment on the Coast, and that weakness was also beginning to show in the Midwest, with its concentration of long-established manufacturing companies.
Lomas expects Florida to remain the busiest state, but expects building permits there to decline by about 11%. Georgia, gearing up for the 1996 Olympics, is the only state expected to show a gain - a skimpy 1.8%.
Surveying key areas in the rest of the country, Mr. Denton had these comments:
Texas. "A year ago, we projected a 20% expansion for new housing in Texas. Builders shot well past that work with a 32% increase. This year, we look for a 4% decline in total permits, although multifamily developers will continue to increase their share of the action."
California. "We project 87,000 permits for the state in 1995, which would be down 10% from last year. Construction during the first few months this year was impossible in many sections of the state, due to record- breaking rainfall and flooding. The state's economic problems relating to military cutbacks have not gone away, and job growth remains anemic."
East south central region. "One of the most stable regions for housing activity this year appears to be (this area), bulwarked by Tennessee's healthy economy and enhanced by the growth of oil exploration and other job-creating activity along the Gulf Coast in Alabama and Mississippi."
Not everyone is pessimistic about home building, however. James F. Wilson and Peter L. Martin, analysts at Montgomery Securities, San Francisco, believe the economy for the balance of the year could be very favorable for new-home sales.
"A more slowly growing economy, with some interest rate relief, is certainly the best environment for builders," they wrote in a recent report on stocks of home builders.
"Regional economic trends have the greatest impact on demand. Southeast and Southwest markets continue to show strong momentum, offering affordable housing, pro-business local governments, and high quality of life."
