Prospects for homebuilding `surprisingly good' for 2002

Sector: The industry, with continuing low mortgage rates and higher home values, is expected to be a leading force in the economy.


January 20, 2002|By Robert Nusgart | Robert Nusgart,SUN STAFF

Much like participants in a religious revival, the economists took their turn at the podium microphone and preached the economic gospel to the gathering of builders and Realtors.

Armed with facts and graphs, they echoed each other: Have no fear, they said, the recession that began in March 2001 would be gone by March 2002, and the housing outlook will be as bright as any economic sector in the country.

"I've committed myself to the economy turning up in March 2002," said David F. Seiders, chief economist for the National Association of Home Builders. "I do feel that we will be pulling out of this and into a very positive growth range. I think the prospects are surprisingly good, and I'd say that builder planning can be pretty aggressive."

It would be hard to argue with the evidence submitted by those who spoke last month at the Home Builders Association of Maryland's 2002 Maryland Real Estate and Economic Forecast.

Consider this:

Mortgage rates, which tumbled below 6.5 percent to hit 34-year lows in October, are predicted to hover around 7 percent this year, keeping housing affordability within reach for many buyers.

Home values, which rose 8 percent last year, will continue to increase, but only at a 2.5 percent to 3 percent pace nationally. And, the average capital gain on a home sale nationally was $35,000.

Unlike previous recessions where there was a glut of housing, inventories for new as well as existing homes will be lean, meaning that demand will continue to be strong.

"In the last recession [in 1991], there was a good deal of talk about overbuilding," said Frank Nothaft, chief economist for Freddie Mac. "The supply of new homes was high, with almost a 10-month supply. Now there is little more than four months."

Despite the pause by consumers after the Sept. 11 terrorist attacks, higher unemployment and the recession, housing economists are expressing optimism.

"The overall sense of well-being in the country has improved, even though some of our economic measures are still heading downhill, but not the expectations," said Seiders, adding that it feels "like the housing sector ... is going to cruise through this thing."

Michael Swanson, senior economist for Wells Fargo & Co., noted that Maryland's unemployment rate at 4.3 percent lags the 5.8 percent national average, which bodes well for the local housing industry.

"Maryland may be unique because it has a very strong biotech component to it, and that has yet to be tapped out," Swanson said.

Swanson scoffed at the idea that there was even a slowdown by hungry consumers, whom he characterized as "Terminators of consumption."

"How many people have tried to get a contractor, or subcontractor to come out and do some work on their house? Not easy to do during a boom, is it?" Swanson said. "They want to see a $25,000 project before they even want to show up and give an estimate."

Although new-home sales in the Baltimore metropolitan region finished 2001 at their lowest point in recent years, homebuilders aren't concerned about the drop, pointing to the lack of available lots as the cause, not a lack of demand.

"The demand is there," said Michael DeStefano, president of Anne Arundel-based Sturbridge Builders Inc. and president of the Home Builders Association of Maryland. "It's just that the supply is extremely small and getting smaller."

Although the inventory of existing homes is also shrinking, having gone under 10,000 units in December for the first time in recent memory, 2001 continued this climb of improving home sales that began in 1997. Last year, 35,239 homes were sold, a 12.2 percent increase over 2000, and local housing officials don't have any reason to believe that the momentum will slow.

"We still see a significantly strong market in 2002," said Alan R. Ingraham, president of the Greater Baltimore Board of Realtors. "The general economic recovery will start to show positive signs in the tail end of the first quarter of 2002 and carry us through the summer.

"If we can stay within 3 to 5 percentage points of what we were activity-wise in 2001, it would be fabulous year by any definition."

Likewise, John Evans, president of O'Conor, Piper & Flynn ERA, also showed confidence for 2002.

"We're not looking for a bad year." Evans said. "We are telling our managers and associates that we think 2002 will be a very good year."

David Lereah, chief economist for the National Association of Realtors, said that existing-home sales nationally will rise 1.6 percent in 2001 to 5.2 million units, the second-highest on record. This year he expects a moderate 1 percent decline to 5.15 million units, which would still be the third-best in history.

"It doesn't get much better than this," Lereah said in his forecast.

As for mortgages, Ingraham, a regional vice president for First Horizon Home Loans MNC Division in Lutherville, said he expects rates to remain in the low 7 percent range and maybe "even go a bit lower" during the first quarter of 2002.

Nationally, Seiders expects rates to "climb back over 7 percent on a sustained basis."

The Mortgage Bankers Association of America is forecasting that the 30-year, fixed-rate mortgage will climb from 6.6 percent in the first quarter of 2002 to 7.2 percent by year's end.

Said Nothaft of Freddie Mac: "We don't see any big spike in mortgage rates even in the next six months or even looking out over the next couple of years."

But what Nothaft does see is high home values and appreciation, outpacing inflation and creating more equity for homeowners. He said home appreciation grew by 9.3 percent in the Baltimore metro area and 12.9 percent in the Washington area last year.

"Healthy house price increases have generated a lot of household wealth, which households have been borrowing against ... and according to Fed research that's a key reason behind the resilience of consumer spending," said Seiders, a former researcher for the Federal Reserve Board. "So we really are wearing the white hats."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.