The Real Deal

Officials say housing woes will bottom out

By Jean Newton

Although recent events have created uncertainty, there is a bright outlook just around the corner for the housing market according to the forecast by economists and Realtors. After setting the second best year on record for existing-home sales in 2001, the housing market is expected to essentially match sales next year, according to the National Association of Realtors.

The outlook was presented at the National Association of Realtors Conference and Expo in Chicago Nov. 2-5 with more than 23,000 Realtors and guests attending.

With the nation settling into an economic slowdown and the consequences of Sept. 11 a factor, the weakest performance for the housing market is expected around the end of this year. "However, given the strong fundamentals of the housing market, namely low interest rates, strong household formation and healthy demand, we expect existing-home sales to turn around by spring and rise gradually for the rest of next year," said Dr. David Lereah, the association's chief economist. The association expects 5.19 million existing-home sales this year, up 1.3 percent from 2000, and 5.16 million in 2002, down a negligible 0.6 percent.

"For the near future, we expect the 30-year fixed mortgage interest rate to stay around 6.7 percent, then rise gradually to 7.2 percent by the end of next year," Lereah said. "Considering mortgage interest rates are close to the lowest levels we've seen since the 1960s, and many areas of the country are transitioning into a buyer's market, there will be an excellent window of opportunity in the months ahead--especially for first-time buyers," he added.

The National Association of Realtors forecasts new-home sales to slip 0.8 percent this year to 874,000 units, then rise 0.8 percent in 2002 to 881,000. Housing starts are forecast to ease by 0.2 percent to a total of 1.61 million units in 2001, then decline by 2.1 percent next year to 1.54 million.

The association expects the national median existing-home price this year to be $147,300, an increase of 6 percent over 2000, then rise by 3.4 percent next year to $152,400.

The National Association of Realtors projects U.S. economic growth, as measured by the gross domestic product, to contract through the first quarter of 2002, then turn positive to a 1.1 percent growth rate in the second quarter. Consumer price inflation for this year should be 3.3 percent, then slip to only 1.9 percent in 2002.

The association projects the national unemployment rate to rise to 5.4 percent by the end of 2001, then average 5.6 percent in 2002. Inflation-adjusted disposable personal income is forecast to grow 3.5 percent this year, largely the result of tax rebate checks, then grow by 2.1 percent in 2002.

It is interesting to compare Santa Clara County's median home price at $550,000 and note the marked difference between national and regional figures. The national outlook provides an overall picture for the entire country and becomes a basis for comparison at the local level.

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Information provided in this column is presented by the Realtor members of Silicon Valley Association of Realtors at www.siliconvalley-realtors.org. Send questions on any topic to jnewton@jnpr.com.

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