Federal Reserve Bank of Cleveland and Federal Reserve Bank of Cleveland. Research Department. "The Housing Boom and Home Financing," Business Trends (August 29, 1954). https://fraser.stlouisfed.org/title/6752/item/621502, accessed on May 3, 2025.

Title: The Housing Boom and Home Financing

Date: August 29, 1954
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image-container-0 Prepared in the Research Department of the FEDEHAL HESEH\/E HJ\NI~ OF CLE\lELi\ND Serving the Fourth Federal Reserve District THE HOUSING BOOM AND HOME FINANCING The current housing boom has been sustained in large part by easier credit terms. The sup- ply of funds available for home loans has been augmented· by easier credit conditions in general, and by a large flow of savings into financial institutions. At the same time ad- ditional funds have been released by repay- ments on outstanding loans and by a slacken- ing in the demand for business and consumer credit. Consequently, many lenders are chan- neling a larger proportion of loanable funds into home mortgages. As an indication of the scope of the housing boom, the 112,000 starts in non-farm housing during July were higher than any similar month except July, 1950. Of this number, 109,600 were private homes and the balance represented public housing construction. When adjusted for seasonal variation, private housing starts ran at an annual rate of 1,174,000 in July, the fifth month in 1954 in which they have reached a of 1.1 million or more. At the end of July, private housing starts so far this year were 3% above the same period a year ago. Barring a completely unexpected col- lapse, the country seems headed for the sixth straight year of a million or more new dwelling units. Housing and other types of construction have been one of the bright spots in a year marked by somewhat slacker activity in other areas. The continued surge in home building has surprised many observers. Apparently the de- mand for housing facilities does not have a fixed saturation point in terms of population, marriages, or family units. Because of the low birth rate in the depression of the 1930' s, and the smaller number of individuals now coming of marriageable age, the decline in marriages is expected to continue until about 1957. How- ever, the formation of households, which con- sist of one or more persons occupying a dwell- ing unit, has been greater than the number of marriages. As a result of prosperous con- ditions in the postwar period, many single persons have established households, and older people have postponed breaking up their house- holds. The "undoubling" of family units previ- ously living in the same dwelling has also helped to keep the rate of household formation above that of marriages. Even though the num- ber of marriages has been tapering off, the postwar "baby boom" is still on the rise, after having reached a new high last year. This is a factor in the demand for new housing, since many homes built in the early postwar period were small, two-bedroom units. Many families with children are thus seeking larger quarters. Another factor in the housing boom has been the movement of population, of three types: from farm-to-city, from city-to-suburb, and B r o ad c a s t b y J o h n J . B a l l e ·s , S en i o r E c o no m i s t , F e d e r a l R e s e r v e B an k of C l e v e l and , o v e r W G A R , Cleveland, with Jim Martin, Morning News Editor, WGAR, Sunday, August 29, atS:45 p.m.
image-container-1 from one section of the country to another. These population shifts have added to demand for dwelling units. Fifteen years of depression and war resulted in abnormally low housing construction from 1930 to 1945, creating a sizeable backlog of needs. Although the housing boom since 1950 has exceeded all other periods, even the 1920' s, the population has grown substantially in the meantime. In relation to population, housing construction is about on the level of the 1920' s. Adding further to new housing activity is the demand for modern improve- ments and the scrapping of old dwellings. The principal factor in the housing boom, pervading all others, has probably been the high level of income and employment. Needs or desires for better housing do not become effective demand in the market unless backed up by purchasing power. As a natural conse- quence of the rising level and wide distribution of income in the postwar period, a demand for larger and better living quarters has made itself felt. This factor has been reinforced by liberal mortgage credit terms promoted after World War II, especially for veterans. The · combination of rising purchasing power and expanded borrowing power had a powerful impact on housing demand. Following a tightening of terms during the Korean war period, the cost and availability of mortgage credit have once again been eased over the past year. The most recent step, as explained in last week's Busines ·s Trend ·s, was the passage of the Housing Act of 1954, which lowered downpayment and monthly payment requirements on FHA-insured home loans. Specific trends in home -mortgage credit terms at leading cities of the Fourth Federal Reserve District have been similar to national trends. There has been a general lowering of downpayments required by lenders on con- ventional as well as government-backed loans, although greater easing has occurred in the latter. VA loans carrying no downpayment, or only a five percent downpayment, have risen substantially. At the same time loan maturities have often been lengthened to eighteen years on conventional loans, to 25 years on FHA- insured loans, and to 30 years on VA-guaran- teed loans. This has the effect of lowering the mohthl y payment of the borrower. Compared with a year ago, interest rates on conventional home loans have declined by one-fourth to one-half a percentage point. Pre- ferred credit risks are able to borrow at 4 3/4% or 4 1/2%, compared with a typical 5% a year earlier. Since contract interest rates on FHA and VA loans are fixed at 4 1/2%, they naturally have shown no decline. However, the easing of money rates has made itself felt in the secondary market in which such loans are bought and sold. The discounts on FHA and VA loans which prevailed a year ago in the secondary market have virtually disappeared. There has been a noticeable trend recently in the relative growth of VA loans, evidenced by the fact that requests for VA appraisals of property are near an all-time high. It remains to be seen whether lenders will be receptive to the more liberal terms now permitted on FHA loans, especially the 30 year maturities. A part of · the answer will depend on the degree of business recovery and consequent competing demand. s for credit. There is considerable mobility in the lending operations of many institutional investors, especially as between business loans and housing loans. In summary, a substantial easing in the availability and terms of mortgage credit has been a principal factor, along with those noted earlier, in the continued high level housing construction. Li·sten to "Business Trend ·s" over WGAR next Sunday, September 5, 1954, at 5:45 p. m. ,
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Date: August 29, 1954
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Broadcast by John J. Balles, Senior Economist, Federal Reserve Bank of Cleveland, over WGAR, Cleveland, with Jim Martin, Morning News Editor, WGAR
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