Strong economy fuels single-family home sales

The Outlook

June 07, 1998|By Kristine Henry

LAST WEEK'S Commerce Department report that sales of new single-family homes rose to an all-time high in April was one of many pieces of good news the housing market has received lately. Consumer confidence dropped a bit in May, but at 135.2 still hovered around February's 30-year high of 137.4. The average rate on 30-year fixed-rate mortgage has been near 7 percent for several months, and sales of existing homes in the area were up 22.4 percent in April compared to the same time last year -- the eighth consecutive month of higher sales. What's driving the housing boom? How long will it last, and what might derail it?

Anna Pitheon

Regional sales director, Meyers Housing Data Reports, Washington, D.C.

What's driving sales overall is a generally strong economic climate, high consumer confidence, a good resale market and low interest rates.

I see strong numbers continuing through the fall market, and we should have a fairly good summer.

The market began its upward trend in the third and fourth quarter of last year, and the only reason the market may slow down is that the timing for delivery of new homes is so many months out that instead of buying in the winter, people may wait until the spring market.

The Fed has been talking about an interest rate increase all year long, and each time they meet, they defer the decision to the following meeting.

If interest rates took a dramatic turn upward, I think we'd see a serious slowdown in housing.

But with the Asian blues, it's unlikely interest rates will take a dramatic spike upward this year.

Consumer confidence is a somewhat fragile commodity, but there's really nothing imminent on the horizon that anyone can project that will derail this year's new-home performance.

William Apgar

Assistant secretary designate for policy development and research, U.S. Department of Housing and Urban Development

We have a good economy, stable mortgage rates, and high consumer confidence. It's close to home-buying heaven now. People who thought they could never qualify for homes are coming into the market. The Federal Housing Administration insures mortgages for folks with a limited capacity to make a down payment and we brought 600,000 first-time homebuyers into the market this year.

I don't see any clouds on the horizon. Interest rates look stable, job growth is good, home-buying programs are getting better and we have no shortage of people who aspire to the American dream of owning a home.

We're seeing a lot of extra outreach. Fannie Mae and Freddie Mac [which supply mortgage funds to lenders] were created through government channels and have mandated requirements to meet certain goals, so there continues to be a focus on inner city neighborhoods.

Maybe way out in eight years we'll see some demographic weakness in terms of slower population growth. The baby boomers are aging, and when they're in their 60s or so there might be a little slowdown in the trade-up portion of the market -- older folks tend not to be as active in the housing market. Even if that's true, it's not for eight or 10 years and in the housing market that's forever. And the immigrants who are coming into the economy now will continue to help sustain economic activity and home buying.

David Lereah

Chief economist, Mortgage Bankers Association of America, Washington, D.C.

We have a very robust economy, cyclically low interest rates, and a huge advance in the stock market. In the last 12 months the stock market has added $1.5 trillion to consumer wealth. All these things are giving consumers the confidence to have a healthy appetite for home buying.

We're probably seeing the highs right now -- next month may show another high, but that will be it. In the summer the sales will go down; they will still be strong, but we can't sustain this level.

The trend could be derailed by a combination of a little upward pressure on interest rates, or if the economy slows down on its own, or if the stock market sees a wild correction. If the stock market drops, it will hit housing very quickly.

Everybody's waiting for the stock market to correct itself, and it hasn't. I think there's at least a 25 percent chance that we'll see a correction.

The housing market is in remarkably good shape right now. Realtors are getting a lot of business, the supply of homes is relatively lean so housing construction is very healthy, and interest rates are low. The only way to do some harm is to have interest rates rise or economic expansion stall or the stock market correct itself. But that's not on my radar screen.

Gilbert D. Marsiglia

President, Greater Baltimore Board of Realtors

I think everybody is feeling very comfortable with the economy. Unemployment is way down, people feel very secure in their jobs and feel now it's OK to go out and spend some money. Interest rates are probably as good as they're going to get and that's also spurring people to buy.

Once inflation starts to spike, then the government starts to raise interest rates. And every time it jumps a percent, we lose part of the market. National security could undermine the security people feel and then they start to worry. But right now nobody seems to be worried about anything.

The market was depressed from about 1990 to 1996, but we started coming out of it in 1997 and it's just been building and building ever since. I don't see any reason why it's going to stop.

Most builders are pretty busy, and if things get much better and builders start to get too much work, prices will go up and inflation will spiral, then the government increases interest rates.

Pub Date: 6/07/98

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