Real estate boom not over yet

May 14, 2004

NAR economist says market still in flight

By Glenn Roberts Jr.
Inman News

WASHINGTON, D.C. -- David Lereah, chief economist for the National Association of Realtors, is getting to be a very popular guy these days.

"Everywhere I go, people are asking, 'Is the housing boom coming to an end? Is the roof caving in?" he said Thursday, during a meeting at the National Association of Realtors midyear conference in Washington, D.C.

Lereah's economic forecast doesn't predict doom and gloom for this boom. Relating this fear of a collapsing market to the panic in the aftermath of H.G. Wells' "War of the Worlds" radio drama, Lereah said, "A little information can be very, very dangerous."

While it's true that mortgage interest rates are rising, it doesn't signal the end of the housing market, he said.

In fact, the market has "wings," Lereah said. "I define a boom as not something that's going out of sight, but as a healthy expansion," he said. "Will real estate continue to expand in a healthy manner? Yes."

Interest rate increases should bring rates between 6.5 percent to 7 percent by year-end, he said, and rates shouldn't impact the housing market unless they are fueled by such negative drivers as inflation and a swelling federal deficit. The federal budget deficit is a "yellow flag," Lereah said, though he expects overall economic growth to neutralize some economic snags.

Consumer confidence is slowly rebounding, while business confidence is way up, he said. Economic analysts pay particularly close attention these days to payroll data, which reflects job growth.

"The market is waiting for payroll numbers," he said, and so far this year the news has been good, with 1.1 million jobs added since September 2003.

While U.S. corporations have reported some very high profits this year, "The stock market still has a hangover from the (tech) bubble bursting," he said, and the stock market has not kept pace with corporate performance. Inflation is under control.

The Federal Reserve Board is expected to raise its benchmark rate in August, or perhaps sooner, Lereah said, though he said there is no cause for alarm.

Seeking to dispel any notions of a sudden end to the thriving housing market, Lereah said there are no bubbles bursting.

"I'm not worried about price growth outstripping income growth. Rising interest rates don't burst bubbles," he said.

This phenomenon, he said, is more a product of job losses and an overabundance of housing.

Those markets that are experiencing double-digit price growth are also distinguished by scant inventory, he said.

Interest rates, "as long as they rise in a manageable way," may slow the housing boom slightly but shouldn't stall it, he concluded.

By 2010, the demand for homes will still be greater than the supply, he said, with rising numbers of immigrants and Baby Boomers' children entering the housing market and incentive programs bringing homeownership within reach for those who previously could not afford to be owners.

Data presented by Lereah projected that new home sales would decline to about 980,000 in 2005, with 1.7 million housing starts during that year, down from 1.07 million new home sales and 1.84 million housing starts projected for this year. Existing home prices, meanwhile, are expected to climb 4.7 percent this year and 4.5 percent in 2005.

Copyright: Inman News Features

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