U.S. home sales break record 2nd year in row

5.56 million homes were sold last year

A rise of 5 percent over 2001

2003 sales are predicted to be less but still strong

January 28, 2003|By Trif Alatzas | Trif Alatzas,SUN STAFF

Sales of existing homes nationwide recorded their best pace last year as buyers capitalized on the lowest mortgage rates in three decades and confidence in the housing market helped strengthen an otherwise fickle economy.

The number of homes sold last year was 5.56 million, the National Association of Realtors said yesterday. The 5 percent increase marked the second consecutive year that sales reached a record.

While most economists doubt housing will set another record this year, they still expect sales to remain healthy. Home sales in December, for example, increased 5.2 percent at a seasonally adjusted rate when compared with November.

Other facets of the housing industry also posted strong sales last year. Sales of new homes are expected to have set a record in 2002 - final figures are to be released today. And the Commerce Department said last week that housing starts in 2002 reached their highest level in 16 years.

The National Association of Realtors predicts that 5.34 million existing homes will be sold this year, which would make it the second best year on record. The group also projects that the median sale price for homes will rise 4.7 percent this year compared with the 7.1 percent increase in 2002. That was the highest increase since 1980.

Thirty-year fixed mortgage rates have hovered below 6 percent during the past several weeks and most economists insist those figures are likely to rise if other pieces of the economy improve. The lower rates allow buyers to purchase a more expensive home for similar monthly payments. For example, a $100,000 loan with a 6 percent rate would cost $599.55 a month compared with $733.76 for the same loan at 8 percent, according to Bankrate.com.

"Low mortgage rates are not going to stick around that much longer," predicted Celia Chen, an economist with Economy.com in West Chester, Pa., who studies housing.

Mortgage interest rates averaged 6.5 percent for a 30-year loan last year, but the figures fell below 6 percent during the past few months. The Mortgage Bankers Association of America predicts that interest rates will return to 6.5 percent this year.

"If we get a resolution to Iraq, interest rates are likely to move up a bit faster than people expect," said Mark Vitner, a senior economist with Wachovia Securities.

Real estate agents said they have seen housing activity increase during the first few weeks of the year. While they are not seeing multiple bids on homes the way they did last summer, most agents said the housing inventory remains tight.

"The one thing I do see is that people would rather invest in real estate than invest in the stock market," said Jan Hayden, president of the Greater Baltimore Board of Realtors. "There is a confidence in real estate that I don't think you see in other parts. Right now, I think we're still in a good market."

Sales of existing homes for the Baltimore area in 2002 posted a 3.21 percent increase compared with 2001, according to unofficial figures from Metropolitan Regional Information Systems Inc. Final statistics are expected next month.

Nakia Evans bought a home in the Garwyn Oaks area of Baltimore last year after searching for months to find a larger house for her three children. She purchased a home facing foreclosure in March for $51,500. Evans spent another $25,000 in renovations for the kitchen and bathroom so her family could move in this past August. Evans said the low interest rates kept her focused on finding a home even though frustration nearly forced her to give up on the search when she couldn't find the right house.

"I probably looked at 21 different houses," said Evans, 27, a state employee. "It was hard to find."

She has since become a part-time real estate agent and rents her previous home in Baltimore, given the strength she sees in real estate values.

Sellers nationwide and in the Baltimore area enjoyed healthy price appreciation last year as housing offered some cover for investors who saw the stock market decline for the third consecutive year.

Nationally, the median price for a home was $158,300 - up 7.1 percent from 2001, according to the Realtors' group. In the Baltimore region, the median sale price was $159,000 in December - up 10 percent from the corresponding period a year ago, according to the Metropolitan Regional Information Systems.

But economists warn that such price increases aren't likely to continue. Many predict values to rise between 2 percent and 5 percent this year.

"There is no pent-up demand for home sales right now," said Vitner of Wachovia Securities.

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