Flood Of Immigrants, Rising Incomes Fuel Demand For Housing Outlook Promising For Many Years To Come, Trade Group Says

The housing market is expected to remain a pillar of strength for the U.S. economy for years to come, thanks in part to home buying by the surge of immigrants who came to this country in the 1980s.

New housing starts are expected to rise to 1.427 million this year from 1.354 million in 1995, according to the National Association of Home Builders. Though new residential construction may slip a little next year, NAHB is forecasting that volume will stay above 1.3 million.

Economists and builders foresee continued strength even if the Federal Reserve should raise interest rates in the months ahead. “A quarter-point here or there is not going to stall housing,” said Rick Porter, president of Richport Properties in Tucker, Georgia.

Moreover, doubt is growing that the Fed will raise rates when policy-makers meet on Nov. 13. Last week, the Australian Financial Review reported that Fed Chairman Alan Greenspan told Australian Treasurer Peter Costello there is no immediate risk of higher inflation in the U.S.

Interest rates aside, the housing market is being buttressed by strong job creation, rising incomes, high consumer confidence and the willingness of buyers to choose adjustable over fixed rate mortgages, according to analysts.

One of the primary forces behind the demand for both new and older homes, they said, comes from the 7.3 million immigrants - the largest inflow since the turn of the century - who came to the U.S. during the 1980s.

“That’s why the ‘80s immigration story is an important one to use to try and figure out what’s happening to the housing market today,” said David Berson, chief economist at the Federal National Mortgage Association.

Anecdotal evidence supports Berson’s theory. “We are seeing the influence of immigration in California, Texas, Florida,” said Tim Eller, chief executive officer of Centex Real Estate Corp., in Dallas. “It’s a huge influence.”

As first-time buyers, recent arrivals tend to be interested in lower-priced houses. In Atlanta, for example, about 70 percent of the properties sold by Richport Properties have been bought by first-time buyers, at an average closing price of $112,000. “We are seeing a significant number of immigrant buyers,” said Porter, the company’s president.

The immigrant buyers often purchase the houses put on the market by the Baby Boomer generation as it moves up the earnings ladder. “As Baby Boomers move out of their entry-level houses, they will be purchased by entry-level buyers, which will be immigrants,” Eller said.

Also aiding the housing market is the recent turn by homebuyers to adjustable mortgage rates to finance their purchases, according to David Seiders, NAHB chief economist. Adjustable rates fluctuate with the market, usually on an annual basis, and therefore are lower in the early years of a mortgage than fixed rates that don’t change over long periods of time, say 15 to 30 years. Adjustable rates climbed from 14 percent of the mortgage market in February to 31 percent in August. That “delays the impact of rising rates compared to the old days” of fixed rates, said Seiders.

Swelling job creation and rising incomes also are boosting the housing market. So far this year, U.S. monthly job growth has averaged 237,000, up from average monthly job growth of 185,000 for all of 1995. Personal incomes have risen 5.9 percent over the past 12 months. “The positives far outweigh the negatives for homebuilders,” Eller said. “Interest rates are still historically fairly low, job growth is strong and consumer confidence is up.”

That means Centex Corp., the nation’s second-largest homebuilder, may see record earnings this year, Eller said. Current forecasts call for Centex to earn $3.09 a share this year, up from $1.83 per share last year.

Nationally, sales of new single-family homes jumped to a 10-year high in August - up 4.7 percent to an annual rate of 832,000 - after rising by 8.3 percent in July, even though 30-year mortgage rates climbed back above 8 percent in the month.

Looking further ahead, the outlook for housing appears to be bright for years to come. “Legal immigration in the ‘90s will be the most of any decade this century,” said Berson. “This is an even bigger story for the next decade.”