The Real Deal

Continued activity expected this year

In spite of a year of uncertainty, both the existing-home and new-home markets are setting new records for 2001, and near-record activity is expected to continue in 2002, according to the National Association of Realtors.

Dr. David Lereah, the association's chief economist, said housing outperformed the expectations of many analysts over the last year. "With the exception of the uncertainty cast by the fallout of Sept. 11, our outlook for the housing market grew brighter as the year progressed. When we get the December data later this month, we expect to see total existing-home sales for 2001 to be 5.25 million, up 2.5 percent from 2000 and surpassing the previous record of 5.21 million set in 1999," he said.

"Total sales will be fairly even this year, with existing-home sales projected to reach 5.23 million in 2002, down a negligible 0.5 percent," he added.

The association also forecasts new-home sales for 2001 to rise 2.5 percent from 2000 to a total of 902,000 units, surpassing the previous record of 885,000 set in 1998, then slip 3.2 percent this year to 874,000 units. Housing starts are expected to rise 1.7 percent to a total of 1.60 million units for 2001, and then decline by 4.0 percent this year to 1.54 million.

Lereah expects U.S. economic growth, as measured by the Gross Domestic Product (GDP), to rise to a positive 1.9 percent growth rate in the second quarter. "Much of our economic activity is being sustained by the strong housing market, which will lead us out of the shallow recession which began last spring," Lereah said. Consumer price inflation for 2002 should be only 1.8 percent.

The association projects the 30-year fixed mortgage interest rate to rise to 7.3 percent by the third quarter. "Even with this fairly modest increase in mortgage interest rates, they will remain low by historical comparisons. However, the spread between fixed and adjustable rates has increased, meaning adjustable-rate mortgages may become more attractive to first-time homebuyers, especially in higher-cost markets," Lereah said.

The association expects the national median existing-home price for 2001 to be $146,600, an increase of 5.5 percent over 2000, then rise by 4.0 percent this year to $152,400. The typical new home price is projected to be $171,200 in 2001, up 1.3 percent from 2000, then rise by 4.7 percent this year to $179,200. "The median new-home price for 2001 is depressed because we saw a pullback from the upper end of the market, but we expect this to improve this year as the economy recovers," Lereah explained.

The association projects the unemployment rate to rise to 6.1 percent before it eases in the fourth quarter. Inflation-adjusted disposable personal income is forecast to grow 2.1 percent this year.

Local Realtors are encouraged by the strong ending to the year 2001 and are looking forward to 2002. As the housing market settles in after the giant leap in sales prices in the dot-com era and the slight downturn of the recent past, it looks like the market is moving ahead on a steady course.

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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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