Sluggish Economy Helping Housing Market, And Vice Versa - NAR

July 10, 2002

WASHINGTON ? A sluggish economic recovery is keeping interest rates near historic lows and helping to sustain a healthy housing market, which in turn is providing support to the economy, according to the National Association of Realtors®.

David Lereah, NAR's chief economist, said mortgage interest rates are not likely to change much until later this year. "Since the economy hasn't established a clear growth path, the Federal Reserve is unlikely to take any action on interest rates in the short term," he said. "However, economic growth should be gaining momentum this fall, stimulated to a large degree by the continuing strength of the housing industry."

The association projects the 30-year fixed mortgage interest rate to hover in the high six-percent range until the fourth quarter, when it's expected to rise modestly to 7.1 percent.

NAR forecasts existing-home sales to ease gradually from record activity in the first half of this year, and to remain at strong levels in the second half. Overall sales in 2002 are forecast to rise 3.7 percent to a total of 5.49 million units, well above last year's record of 5.30 million sales.

New-home sales should rise 0.7 percent to a total of 915,000 units this year, also a record. Housing starts are seen to rise 2.2 percent to a total of 1.64 million units in 2002.

NAR forecasts the national median existing-home price to rise 5.5 percent to $155,900 in 2002. The typical new home price is projected to be $188,100 this year, up 7.4 percent from 2001.

Lereah said housing was responsible for 61 percent of all the growth in the U.S. gross domestic product (GDP) in 2001. "Given the record volume of home sales this year while other sectors of the economy have remained fairly tame, housing is stimulating a wide range of related goods and services that accompany the typical home sale," he said. "This should help the GDP to reach an annual growth rate of 3.5 percent in the fourth quarter."

He expects U.S. economic growth, as measured by the GDP, to rise 2.6 percent for all of this year. Consumer price inflation for 2002 should be only 1.7 percent.

The association projects the unemployment rate to decline to 5.8 percent by the fourth quarter. Inflation-adjusted disposable personal income is forecast to grow 4.1 percent this year.

Source: The National Association of Realtors

Contact ALTA at 202-296-3671 or [email protected].