Housing starts may slow a bit

Interest rates should rise, but outlook is still robust, economists say

09:03 PM CST on Sunday, January 16, 2005

By STEVE BROWN / The Dallas Morning News

ORLANDO – Mortgage costs may go up in the months ahead, but that didn't put a damper on the housing industry's weekend bash.

At their annual convention in Florida, 95,000 homebuilders and others from the residential construction industry were more put off by the rain than any clouds in the 2005 building forecast.

But economists told the National Association of Home Builders to watch out for a slight dip in new home sales this year.

Higher interest rates and rising inventories of unsold new homes could cause single-family housing starts to drop 3 percent, economists predict.

"That's not down much compared to the current record pace," said Frank Nothaft, the top economist for Freddie Mac, one of the country's largest mortgage providers. "I think we are going to have a pretty good housing market overall."

Builders started about 1.6 million single-family homes in 2004 – an all-time high. This year, the forecast is for 1.55 million starts, which would make 2005 the second-busiest year on record.

The forecast presumes that mortgage rates will move up only slightly this year.

The home builders association expects finance costs to average 6.3 percent this year on a 30-year loan, compared with an average of 5.8 percent in 2004. The increase would add about $50 a month to payments on a $150,000 fixed-rate mortgage.

"The big surprise last year was how low mortgage rates remained," said Mr. Nothaft, who, like most analysts, had expected interest costs to rise faster.

But a sluggish economic recovery kept mortgage costs down.

If the economy heats up this year, that would increase interest rates, he said.

"If it turns out economic growth is much more rapid or we see the inflation genie come out, mortgage rates will move higher, and that will translate into a weaker housing picture," Mr. Nothaft said.

Strong starts

Last year was the fourth consecutive year of higher home starts.

"The U.S. homeownership rate climbed to a new record in 2004, and there's still a lot of potential going ahead," home builders association economist David Seiders said in his forecast for 2005.

Mr. Seiders believes that strong demographics – including immigration – are also driving the home market.

Home appreciation, which has outpaced inflation during the last few years, is expected to slow this year.

Fannie Mae, one of the largest mortgage companies, says home appreciation will drop from near 10 percent in late 2004 to 3.5 percent on average this year.

Continued price growth

None of the mortgage and building experts anticipate a slide in home prices.

"Home prices should grow at a modest, healthy pace," Daniel Mudd, the interim chief executive of mortgage provider Fannie Mae, told builders. "It's true – some local housing markets may be overheated and are bound to cool down. But the fundamentals of the national housing market are sound."

New home prices are unlikely to fall because builders are getting hammered by higher costs.

Expenses for everything from land to labor to government fees are going up. At the same time, a super-competitive market is making it tough for builders to raise prices.

"Profit margins may be squeezed to some degree," Mr. Seiders predicts.

Builders have seen a dramatic increase in the cost of building materials in the last two years. And about 80 percent of builders surveyed recently said they had seen steeper hikes in the cost of concrete, wallboard, steel and lumber in the last six months.

Still, building industry forecasters are hoping the worst of the materials price increases are over.

"The big hits came last year in terms of the actual prices – a lot of builders got burned," said home builders association analyst Michael Carliner. He said some material prices are "now down from their peaks."

The home builders association blames production limits and overseas demand for the higher costs.

If the U.S. commercial real estate market bounces back this year with more construction, it could put more pressure on building materials, Mr. Carliner said. "You might get actual problems of availability with some products," he said.

In some areas, builders have cut back on home construction because inventories of unsold homes are going up.

New home inventory around the country was at its highest level in more than two decades at the end of 2004, according to the National Association of Home Builders.

In the Dallas-Fort Worth area, home starts fell by about 10 percent in the fourth quarter because of the increase in unsold new homes.

2nd tower going up on Victory project

Most of the condos in the first phase sold faster than expected

10:29 PM CST on Monday, January 10, 2005

By STEVE BROWN / The Dallas Morning News

Hillwood Capital is beginning work on a second tower in its Victory project near downtown Dallas.

A 15-story condominium building will be attached to the south side of the W Dallas Victory Hotel and Residences, which is under construction.

The next residential tower, which will be built on top of the hotel's parking garage, will have 83 one- and two-bedroom condos.

Victory developer Hillwood said Monday that it has sold most of the 61 condos in the W tower.

"I don't think we anticipated we would sell the units as fast as we did," said Jonas Woods, president of Hillwood Capital.

The W hotel and condo building is set to open next year across the street from American Airlines Center. Mr. Woods said the second building will open "as close to simultaneously as we can make it."

Hillwood is building the project in partnership with Dallas-based Gatehouse Capital.

The new Victory building will have a fitness center and retail on the ground floor. As in the first tower, residents will have access to room service, housekeeping, concierge service and the hotel spa.

The condos will sell from about $400,000 to more than $1 million.

Dallas architects HKS Inc. designed the building, and local designer David Cadwallader did the interiors.

Residential analysts say Hillwood wanted to keep homes available for buyers.

"They have proven that there is a market there that perceives Victory as a location where they want to live," said Mike Puls of Foley & Puls. "The W hotel will attract a lot of people."

With the large number of high-rise condo projects in the market, Mr. Puls said, buyers have a lot of choices.

Construction also began recently on two midrise residential buildings in Victory, one with apartments and one with condos.

All the buildings will stretch along Houston Street between the W and Lamar Street.