Stirring Housing Market Seeks New Financing Sources

IN 1975 and 1982, a home-building surge helped pull the United States economy out of recession. This year it will be much harder to construct a recovery out of sheetrock, two-by-fours, and tenpenny nails.

Even if Congress passes the $5,000 tax credit for first-time home buyers proposed last week by President Bush, banks are unlikely to finance a new building spree, economists say.

"Banks are just not going to get themselves exposed to real estate like they did in the 1980s," says Garlan Morse, of Morris & Morse Company, real estate investment consultants.

"There's no question that [tight lending policies] will serve as an impediment in 1992," says Kent Colton, of the National Association of Home Builders in Washington, D.C.

Housing starts, which hit a 46-year low of 1 million last year, finally appear to be headed upward - to about 1.2 million this year, industry officials say.

Mr. Colton says the proposed Bush tax credit would stimulate demand further, adding 215,000 housing starts. He says it would create 415,000 jobs and $20 billion in economic activity. He says the figures assume some easing of credit, and growth in consumer confidence.

But Mr. Morse says banks and savings-and-loan associations, the traditional founts of real-estate financing, are going to be tightening their spigots - even if it means allowing other financial institutions such as pension funds to take an increasing role.

"Banks are redefining their role as capital providers to the ... construction industry," says Morse. Banks, still recovering from a wave of real estate loans gone bad, will be holding such lending well below the levels of the 1980s, he says. They are particularly wary of speculative loans, such as for building homes that aren't presold.

In the 1980s, many banks allowed real estate lending - apart from financing of home mortgages - to assume more than 20 percent of their portfolios. Morse says that even banks which have a favorable attitude toward real estate consider 15 percent as a more reasonable amount of exposure.

This means "Wall Street is probably going to be the source for a lot of capital" for the construction industry, Morse says. Already many large builders raise equity capital by issuing stock. Companies that size can also take out corporate loans, rather than "real estate" loans for specific projects.

Recently the California Public Employees' Retirement System, the state pension fund, set aside $225 million for housing-related lending, Colton notes. He says banks are not helping the building industry meet the pent-up demand for homes. Growing demand may propel housing starts to 1.3 million or 1.4 million a year in the '90s, Colton says.

Gary Cimenero, chief economist with Fleet/Norstar Financial Group, sees a bleaker outlook for the housing market. Buyers are too concerned about job security and debt "to be making that kind of commitment" on a new home, he says. "With all due respect, that $5,000 tax credit is a stunt. It doesn't address any of the issues" that are keeping consumers on the sidelines, Mr. Cimenero says.

Rising residential construction, he continues, will provide some stimulus for the economy this year, but exports have greater promise for pulling the nation into a recovery. Cimenero points to two factors constraining bank lending:

1. Overbuilding in the 1980s. He notes that the market is regional. But at Fleet, based in Providence, R.I., "We're not getting any requests" for financing from construction companies, he says. Home values have fallen 15 percent in Boston since 1988, and California real estate appears to be on a downward course as well, Cimenero says.

2. The "implosion of the banking sector." Banks and savings-and-loan associations are shrinking as they recover from bad real-estate loans made in the '80s. Some banks and thrifts are failing, while others are merging or reducing lending in order to meet required capital-to-asset ratios.