Federal Reserve economists may be detecting signs of the long-expected "soft landing" national economic slowdown. And last week's economic growth report from the federal government suggested that, indeed, a cooling appears to be under way.
But don't look for even a hint of that chill in the latest federal home-price appreciation data. To the contrary: Housing values across the country are defying the trend - rising faster now than at any time in the past 12 years.
According to the latest House Price Index, released Dec. 1, the typical home in the United States increased in value by 7.3 percent from the third quarter of 1999 through the comparable period this year. The new report from the Office of Federal Housing Enterprise Oversight documents stunning gains: Nearly 30 major metropolitan markets racked up housing appreciation rates of close to 1 percent per month - that's right, per month - during the past 12 months. Several California markets saw gains of 24 percent or more during the year, roughly a 2 percent increase in value per house per month.
In the Baltimore metropolitan area, values increased 5.4 percent from the third quarter of 1999.
What's up with home values? Are houses tapped into some vital force that runs counter to the normal tidal shifts in the national economy? How can real estate be at its inflationary high point for the decade while the rest of the economy clearly is ebbing?
The answers add up to real money for anyone who owns a house or is contemplating buying one. Here's what's happening:
Housing values are tied into consumer demand for houses. Demand, in turn, is part consumer appetite, part consumer ability to perform.
Families or individuals not only have to seriously want a new house; they've got to be able to afford to buy one. They need to have jobs, income and savings.
But demand is only part of the story of home values. There has to be enough supply, enough homes ready for sale in the market to satisfy demand.
There have to be enough townhouses and condos for sale to fill first-time buyers' appetites at the entry level of the market. There have to be enough midrange move-up houses available to handle demand. There have to be enough luxury units to satisfy buyers at the upper end. Without a sufficient supply of salable properties, you get price pressure on the houses that are available.
Combine high demand with near-record tight supply, and what happens? Boom! You get record-setting home appreciation numbers, despite the fact that the rest of the economy is softening. That's what's been happening this year in most parts of the country.
Senior Fannie Mae economist Orawin Velz points out, for example, that the supply of existing homes for sale nationwide has been lower than in any year in the past decade - currently about a four-month inventory.
Typical supplies during much of the 1990s for resale homes ranged from six to nine months, by contrast. Earlier this year, the supply dropped well below four months, triggering the sorts of multiple-contract, bidding-war home sales that drew headlines.
Tight supply and high demand are also squeezing the home construction market: Currently, builders nationwide have just over a four-month supply of units to sell - well below the past decade's average.
And there are other factors keeping the pressure on values: Michael Carliner, an economist with the National Association of Home Builders, notes that, while the cost of mortgage money today is higher than it was earlier in the economic cycle, "it is still at a very moderate level" in historical terms.
Not only is 8 percent money affordable, but it also comes in an unprecedented variety of packages designed to empower would-be purchasers - zero down payment loans, 3 percent down payment loans, mortgages that cover your closing costs, etc. All of that helps whip up effective demand.
Carliner also believes that there is another, subtler trend under way that stokes up appetites: In many parts of the country, municipalities are lowering their property tax levies on homes, or at least cutting their dependence on homeowners for revenue to fund municipal budgets.
That, in turn, cuts the monthly cost of owning a home, and stimulates demand for bigger and costlier houses.
How long can this counter-cyclical, home-appreciation fiesta keep going? Fannie Mae economist Velz guesses that appreciation rates will begin cooling sometime in the first half of 2001. But even then, she says, housing value gains should be strong relative to the rest of the economy.
The bottom line for new buyers and owners: Take good care of that house of yours. It's the best all-weather investment account you've got.
Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.