Effect of war could be brief

Hot real estate market faces 'modest disruption'

A quick scenario for Iraq

But if conflict's prolonged, interest rates might rise

March 09, 2003|By Trif Alatzas | Trif Alatzas,SUN REAL ESTATE EDITOR

Real estate professionals were calming worries last week that homebuying will slow if the United States and Iraq go to war during what traditionally is the industry's busiest time of year.

Just about everyone - from Federal Reserve Chairman Alan Greenspan to local real estate agents - believes the housing market will cool from its frenetic pace after two straight years of record sales.

But mortgage rates continue to defy expectations and their historic lows should help the market avoid a severe slowing, economists say. Housing has been a strong driver of the economy the past two years, and its pace has become a closely watched gauge because of its contribution to consumer spending.

Last week, members of the National Association of Realtors discounted concerns that housing activity will suffer much this year, even with a war. Those statements came as Greenspan said he expected sales and prices to cool this year after two consecutive record years.

"If the Iraqi regime is toppled in short order, there likely will be modest disruption to the U.S. economy and housing markets, and confidence would be restored," David A. Lereah, chief economist for the national Realtors association, said in a statement.

But Lereah and others said mortgage rates could rise in a prolonged war and homebuying could soften.

According to the Realtors group, existing-home sales fell 12 percent and prices fell more than 6 percent during the Persian Gulf war in 1991. After Sept. 11, 2001, sales fell 11 percent and prices fell 6 percent. But sales and prices picked up in 2002 and recorded their best year in history.

Some local agents said a few sellers have expressed concern about putting their homes on the market, given the uncertainty facing the country. That could pose problems for buyers, who already have fewer homes to choose from since the number of houses for sale is off about 20 percent compared with last year.

"I would expect that for at least a month, that it wouldn't be a good time to sell unless you had to," said Christopher L. Cagan, director of research and analytics for First American Real Estate Solutions in Anaheim, Calif. "If the war is over quickly, then you're on with business.

"If there was a nasty war that goes on for six months or a year, then you start having issues of consumer confidence. It will take the edge off some of the prices - especially at the top end."

Many shoppers said the low interest rates outweigh their concerns about uncertainty right now. And others said if they can find the right house for the right price - they're buying.

"The bottom line is you have to keep living," said Greg Jones of Baltimore, who has been looking for a five-bedroom home in the Garwyn Oaks section of the city for six months. He and his wife have lost out on several homes because other buyers moved faster.

Because of those inventory concerns, several Maryland real estate experts said they expect the mid-Atlantic to fare better than other parts of the country. Most agents said they continue to instruct sellers who are considering putting their house on the market to do so given the large demand for housing. They also point out that the defense industry employs many workers in this region.

"It won't be a record-breaking year, but it would be the kind of year that we would have loved to have 10 years ago," said Mary C. Antoun, chief executive officer of the Maryland Association of Realtors.

In the Baltimore metropolitan area, the average housing price rose 11.47 percent in 2002 to $183,309. And sales reached a record for the second straight year, rising 4.27 percent to 37,118 homes, according to Metropolitan Regional Information Systems Inc., the Rockville listing service used by agents and brokers.

Nationally, Greenspan noted, home prices increased at a slower rate during the latter part of 2002, having risen 6.6 percent for the entire year.

For example, national home prices rose 0.83 percent in the fourth quarter, according to a report last week by the Office of Federal Housing Enterprise Oversight. It was the smallest rate of growth in five years. In Maryland, prices rose 1.27 percent in the quarter.

Homebuilders said they believe housing will remain healthy this year, but they acknowledge that there are plenty of things that could go awry. The biggest fear remains the country's deficit, which likely would rise during a war and could affect long-term interest rates.

"If the [government] is back into the markets borrowing heavily again, then it will force interest rates up again, and that's not terribly good news," said John E. Kortecamp, executive vice president of the Home Builders Association of Maryland.

"All we can do at this point is wait and see what happens. On the good news side, in times like these, people need to put their money someplace, and housing has been a strong piece of the economy."

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