HOUSTON — After a surprisingly strong 1996 for housing starts, the National Association of Home Builders forecasts a 6 percent decline this year — but economists were not complaining at the association's annual convention.
Instead, as the U.S. economy enters its sixth straight year of growth, with inflation low and interest rates stable, number crunchers in Houston say the era of boom-and-bust cycles could be over.
``We have been seeing for a number of years ... a plateau of housing activity,'' said David Seiders, NAHB chief economist.
Meanwhile, while remodeling remains strong, the rate of growth is slowing, according to the Washington-based NAHB.
New home construction and remodeling are important markets for plastic products, especially vinyl, as they require windows, doors, pipe, new appliances and furniture. The association said residential construction totals $230 billion a year, or about 4 percent of total U.S. economic activity.
Paul Boltz, vice president at T. Rowe Price Associates Inc. of Baltimore, said low volatility is healthy.
``We never get really revved up, like we were, say, in the late '70s. But we don't have these periodic busts, which are so brutal, especially to the home building industry,'' he said.
In 1991, home building slumped to its post-World War II low of just more than 1 million starts. But in the five years since, housing starts staged a rebound, then swung back and forth in a fairly narrow range between 1.2 million and nearly 1.5 million.
In 1996, starts increased 9 percent over 1995 to hit 1.47 million — ``a modestly better-than-expected year,'' as Seiders put it. For 1997, NAHB predicts a 6 percent drop, to 1.38 million. ``It's an orderly retreat,'' he said.
``I've got a very even-keel kind of a forecast. I'm looking for modest down movement in 1997, and maybe a little bit further down in '98. I think the levels of activity we posted last year are probably not sustainable,'' Seiders said during a news conference at the Builders' Show, held Jan. 24-27 in Houston. About 65,000 builders and suppliers packed the Astrodome complex for the show.
Spending on remodeling should reach $125.3 billion in 1997, 5.7 percent higher than the 1996 figure of $118.5 billion, NAHB said.
A few years ago, the association thought remodeling would average more than 6 percent annually through 2000, but officials have ratcheted that down to between 4 and 5 percent.
In Houston, the three-economist panel — Seiders, Boltz and David Wyss, research director at DRI/McGraw-Hill in Lexington, Mass., were unanimous in their praise of the Federal Reserve Board. The Fed influences the economy by tinkering with interest rates, a key factor when people decide whether to build a new home or finance a major remodeling project.
NAHB's Seiders thinks interest rates will be ``very quiet'' this year, with a 30-year fixed mortgage remaining around 7.5 percent. Boltz and Wyss both put it closer to 8 percent — still much lower than rates were 10 or 15 years ago.
``We love this market,'' said Boltz.
T. Rowe Price, which sells mutual funds, thinks the economy will remain solid and the stock market strong this year.
``This isn't going to last forever, but this is a marvelous period for the U.S. economy,'' he said.
He said the apparent end of the boom/bust economic cycle can be credited to current Fed policy and the switch to a service economy far less prone to cyclical swings than manufacturing. Also, widespread adoption of more-sophisticated, computerized inventory control means ``you get a lot of little adjustments rather than one big one.''
All three economists see inflation remaining low this year — but that could change if unemployment continues to drop. The U.S. economy, nearing what economists call ``full employment,'' still created 2.8 million jobs last year, Wyss said. ``That's incredible this late in the business cycle.''
The bad news, Wyss said: with only about 6 million left jobless, ``we're going to run out of people to hire.'' That makes growth much harder. ``The best we can look for is continued, rather modest growth,'' he said.
Seiders said builders continually complain about how hard it is to find skilled workers such as carpenters. Prices also are rising for lumber and land.
``We are beginning to see wage inflation rearing its ugly head,'' Wyss said.
So far, pay hikes have been offset by cuts in health care costs as companies switch to health maintenance organizations. But now that most firms have HMOs, higher wages are starting to bite, according to Wyss.
``That still leaves us in pretty good position for the next couple of years. We aren't seeing the inflation yet,'' Wyss said. ``This is not a problem for 1997. It may be a problem for late '98-99, or 2000.''
Wyss also credited the Fed, but he said the United States, luckily, has been ``out of phase'' with the economies of Europe and Japan. This holds down inflation, since U.S. producers know that, if they raise prices, foreign manufactures will pour in goods to keep their factories running, he said.