Economists See No Signs Of Housing Bubble

April 9, 2002

The housing outlook remains strong and there are no signs of a housing price ?bubble? on the horizon, according to economists for the National Association of Home Builders (NAHB) and National Association of Realtors (NAR), speaking last Friday at the National Press Club Newsmaker Briefing,

?All the numbers we are seeing point to a good balance of housing supply and demand in most of the country,? said NAHB Chief Economist David F. Seiders. ?Fear of a pricing bubble would drive people back into stocks -- which Wall Street would surely love -- but it is just not the case.?

Seiders also noted that with the inventory of unsold new homes on the market hovering around 4.2 months, housing will not have to make a ?payback? for over-building during past recessions. ?The economic and financial market environment in our forecasts should provide a solid foundation for the housing market in both 2002 and 2003,? he said. ?While some fallback in housing starts seem inevitable in the second quarter of this year, following a huge first quarter, total starts are expected to hover around the 1.6 million annual rate over the balance of this forecast period.?

?You always need to go back to the fundamentals,? David Lereah, NAR?s chief economist, added. ?With the economy growing, the job market rebounding and mortgage rates staying relatively low, we see the housing market staying healthy through 2003.? A record 906,000 new homes and 5.3 million existing homes were sold in 2001.

Seiders and Lereah both forecast that mortgage rates will rise only marginally, moving towards 7.4 percent by the end of 2002 and 7.7 percent for 2003. The unemployment rate, a key indicator of overall economic health, is forecast to peak at around 5.7 percent. The Gross Domestic Product (GDP) is now estimated to grow at a 3.9 percent rate for the year.

Housing production and housing-related services account for about 14 percent of the GDP and drive other closely related sectors of the economy. After purchasing a newly built home, owners within twelve months spend an average of $8,900 to furnish, decorate and improve that home - more than twice the average spent by non-movers. Buyers of existing homes spend $3,766 more than non-moving home owners in the first year after purchasing their homes, and renters also spend significant amounts on furnishing their new apartments.

Source: National Association of Home Builders

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