David Lereah, the association's chief economist, said a primary concern would be the length of any war. "If the Iraqi regime is toppled in short order, there likely will be modest disruption to the U.S. economy and housing markets, and confidence would be restored," he said.

"However, a prolonged conflict or an unexpected turn of events could be very costly. The result would be growing federal budget deficits that would cause interest rates to rise and put the brakes on both housing and the economy, not to mention consumer confidence."

Based on the current direction of the economy, Lereah expects the 30-year fixed mortgage interest rate to rise gradually from an average of 5.9 percent in the first quarter to 6.5 percent by the end of the year. "In other words, the average mortgage interest rate this year should be a historically low 6.2 percent."

"Another factor favoring housing in the current environment is the volatility of the stock market," Lereah said. "The general stability of real estate has become more attractive to investors over the last few years."

The association forecasts 5.5 million existing-home sales in 2003, down slightly from a record of 5.57 million sales in 2002. New-home sales should total 946,000 units this year, down modestly from a record of 976,000 sales in 2002. Housing starts are forecast at 1.71 million units this year, the same as in 2002.

The national median existing-home price is expected to increase 4.5 percent in 2003 to $165,400. At the same time, consumer price inflation should be 2.6 percent. "This means that after two years of above-normal home price appreciation, we'll return to a market with generally normal rates of increase," Lereah said. The median new-home price is seen to rise 3.3 percent in 2003 to $192,400.

Lereah said growth in the U.S. gross domestic product should improve gradually during the year and reach an annual growth rate of 4.2 percent in the fourth quarter.

The National Association of Realtors projects inflation-adjusted disposable personal income to grow 3.6 percent in 2003, while the unemployment rate should gradually decline to 5.6 percent by the end of the year. The consumer confidence index is expected to dip to 77 in the first quarter before rising to an index of 106 by the end of this year.

Many people will be sticking close to home during the next few weeks to see how the war plays out and how it will ultimately impact the economy and housing industry.

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