Los Gatos, California Since1881
Valley Homes - The Real Deal
| Fit housing market is supporting economy By Jean Newton A slower-than-hoped-for economic recovery isone reason that interest rates remain nearhistoric lows, which in turn is partlyresponsible for helping to sustain a healthyhousing market. And, according to theNational Association of Realtors, the housingmarket is helping to support the economy. The association's chief economist, DavidLereah, said mortgage interest rates are notlikely to change much until later this year. "Since the economy hasn't established a cleargrowth path, the Federal Reserve is unlikelyto take any action on interest rates in theshort term," he said. "However, economicgrowth should be gaining momentum this fall,stimulated to a large degree by thecontinuing strength of the housing industry." The association projects the 30-year fixedmortgage interest rate to hover in the high 6percent range until the fourth quarter, whenit's expected to rise modestly to 7.1percent. A recent report from Freddie Mac put thenational average commitment rate on a 30-yearfixed-rate mortgage at 6.54 percent, downfrom 7.21 percent one year ago. "The current uncertainty of corporategovernance caused huge transfers of moneyinto more stable and safer assets.Large-money managers shifted theirinvestments into bonds, thereby loweringtheir yields and allowing mortgage rates tofollow," said Frank Nothaft, Freddie Mac'schief economist. "Consumers, meanwhile, reallocated some oftheir wealth into housing, prompting stronghome sales over the last few months. Mortgagerates currently are about the same aspost-Sept. 11 levels, which were agenerational low. As a result, we areforecasting a new record number of total homesales and heavy refinancing for the year." The National Association of Realtorsforecasts existing-home sales to easegradually from record activity in the firsthalf of this year and to remain at stronglevels in the second half. Overall, sales in2002 are forecast to rise 3.7 percent to atotal of 5.49 million units, well above lastyear's record of 5.30 million sales. New-home sales should rise 0.7 percent to atotal of 915,000 units this year, also arecord. Housing starts are seen to rise 2.2percent to a total of 1.64 million units, in2002. The association forecasts the national medianexisting-home price to rise 5.5 percent to$155,900 in 2002. The typical new-home priceis projected to be $188,100 this year, up 7.4percent from 2001. Lereah said housing was responsible for 61percent of all the growth in the U.S. grossdomestic product (GDP) in 2001. "Given therecord volume of home sales this year whileother sectors of the economy have remainedfairly tame, housing is stimulating a widerange of related goods and services thataccompany the typical home sale," he said."This should help the GDP to reach an annualgrowth rate of 3.5 percent in the fourthquarter." U.S. economic growth, as measured by the GDP,is expected to rise 2.6 percent for all ofthis year. Consumer price inflation for 2002should be only 1.7 percent. Information provided in this column ispresented by the Realtor members of the Silicon ValleyAssociation of Realtors at www.silvar.org. Send questions on any topic tojnewton@jnpr.com. |
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