The Real Deal

Housing market forecast: like 2001

As long as there is a gradual growth in economic activity, the forecast for existing home sales in 2002 promises to be very close to last year's record sales, according to the National Association of Realtors.

National Association of Realtors Chief Economist David Lereah said all the factors necessary for a strong housing market are in place again this year. "As the economy picks up steam in the second half of the year, a rise in jobs and consumer confidence will more than offset slightly higher interest rates. That will boost consumer confidence in purchasing high-ticket items such as homes and keep the housing market in record territory," he said.

The association forecasts existing home sales to slip only 0.5 percent in 2002 to a total of 5.27 million units, second only to last year's record of 5.30 million sales. New-home sales are projected to drop 4.1 percent from a record 906,000 sales in 2001 to a total of 870,000 units this year. Housing starts are seen to decline 2.3 percent to a total of 1.57 million units in 2002.

Lereah expects U.S. economic growth, as measured by the gross domestic product (GDP), to rise gradually to a 3.1 percent growth rate in the fourth quarter. Consumer price inflation for 2002 should be only 1.6 percent.

As the economy improves, the association projects the 30-year fixed mortgage interest rate to rise to 7.3 percent by the third quarter. "Despite an uptick in mortgage interest rates, affordability will remain favorable for most households in most areas," Lereah said.

The association expects the national median existing home price to rise 5.1 percent to $155,400 in 2002. The typical new home price is projected to be $184,700 this year, up 6.1 percent from 2001.

The unemployment rate is expected to peak at 6.0 percent in the second quarter, then gradually decline. Inflation-adjusted disposable personal income is forecast to grow 2.3 percent this year.

Compared with the nation, California real estate will continue to appreciate in 2002, with the median price of homes increasing to $279,920, up 6 percent from an estimated median last year of $264,080.

According to the California Association of Realtors Senior Economist Robert A. Kleinhenz, the housing market will remain strongest in Southern California, while the Bay Area will continue to play catch-up until the region's technology industry gets back on track. The Bay Area's economy is predicted to pick up activity in late 2002 and early 2003.

Kleinhenz indicates California has fared well compared to the nation as a whole over the last two to three years, growing to become the fifth-largest economy in the world. While he said California is expected to clear the current economic hurdle in the coming months, the state's housing shortage will present an even greater challenge than the recent energy crises, keeping pressure on housing prices.

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

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