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The Real Deal
Return to a normal market is likely
With single family home sales rising to almost record levels at the end of the year, the housing market is looking strong in 2002, according to a recent report from the National Association of Realtors.
Existing home sales were consistently stronger than expected during the past year and Dr. David Lereah, the association's chief economist, said he is looking for another strong performance in 2002. "Despite the recession, all the major factors necessary for a strong housing market--low interest rates, strong household formation and relatively low unemployment are continuing to create favorable market conditions," Lereah said.
The housing market appears to be gaining the most from low interest rates said National Association of Realtors President Martin Edwards Jr.
"Mortgage interest rates held pretty steady last month, close to the lowest levels we've seen since the 1960s. With low interest rates and more homes coming on the market, we have an excellent window of opportunity for the first part of the New Year--especially for first-time buyers," Edwards said.
With forecasts calling for an improved economy in 2002, interest rates could tick up by the second half of the year to place some pressure on lower income borrowers said Edwards.
According to Freddie Mac, the most recent national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 7.16 percent, up from a record low of 6.62 percent in October and a 6.66 percent rate in November. While the rate is up slightly, mortgage rates are still considered to be very affordable.
Although the commerce department recently announced the economy had performed at its weakest in a decade, the strength of the housing market continues to boost the economy in a variety of ways. Due to lower interest rates, many homeowners have decided to refinance older, higher mortgage rates.
Since the average 30-year fixed rate mortgage was 8.06 percent in 2000, considerable savings can be realized by refinancing at the average rate in 2001, 6.96 percent. For example, the typical homeowner with a 30-year fixed mortgage at $150,000 could save about $1,000 because of lower interest rates.
Additionally, many families are deciding to refinance to tap some of the built up equity in their home. With extra cash in hand, they can pay off credit card debt to improve their financial condition or buy a big-ticket item to help bolster the economy.
While the forecasters continue to watch and modify predictions, the future looks a bit brighter than it did a few months ago. As the New Year unfolds, all indications point to the housing market continuing on a strong course--or in the case of Silicon Valley--a return to a more normal housing market that doesn't skyrocket off the charts.
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Los Gatos, California Since 1881
