Property ManagementNAR Reports Record August, Lowers Housing Forecast Through Q-1, 2001
Sales of existing single-family homes hit a new record in August, but sales are
now slowing and will be lower than expected in the months ahead, according to
the National Association of Realtors.
Existing-home sales rose 5.8 percent in August to a seasonally adjusted
annual rate* of 5.50 million units from an upwardly revised level of 5.20
million units in July. Last month’s sales activity remained 5.0 percent above
the 5.24-million unit pace in August 2000. The previous record was an annual
rate of 5.45 million units in June 1999.
Dr. David Lereah, NAR’s chief economist, described today’s report as ironic.
"Like everything else, this bright spot in the American economy has been
eclipsed by the events of September 11," he said. "After setting a new record
for existing-home sales in August, our internal tracking shows a downturn
following the attack on America, and there will be some natural pullback from
big ticket purchases in the months ahead given uncertainty over the future," he
added. NAR now expects home resale activity to average below the 5.0
million-unit rate through the first quarter of 2002.
"However, the negative effect should be temporary because the fundamentals
of the U.S. economy remain favorable, and we should experience a delayed
rebound. Assuming we’re successful in preventing additional attacks, the
rebound will be postponed until next year as we work toward market
stabilization," Lereah explained.
According to Freddie Mac, the national average commitment rate for a
30-year, conventional, fixed-rate mortgage was 6.95 percent in August, down
from 7.13 percent in July; it was 8.03 percent in August 2000.
NAR President Richard A. Mendenhall said one positive factor in the current
market is the low level of interest rates. "We now expect mortgage interest
rates to move even lower to about 6.7 percent in the fourth quarter, which
basically would match a record low. This is supporting the housing market and
will be especially helpful to first-time home buyers," he said.
The national median existing-home price was $154,700 in August, up 8.0
percent from August 2000 when the median price was $143,200. The median is the
midpoint, which is a typical market price where half of the homes sold for more
and half sold for less. NAR expects the median price for all of this year to
rise 5.8 percent to $147,100, then increase 3.3 percent in 2002 to $151,800
(median prices peak in the summer months as higher ratios of families with
children purchase larger and more expensive homes).
Housing inventory levels at the end of August rose 8.5 percent from July to
a total of 2.18 million existing homes available for sale, which represents a
4.8-month supply at the current sales pace. "The supply of homes on the market
remains lower than historic norms, which is contributing to stronger price
appreciation in many areas," Lereah said.
Lereah said there are many factors pointing toward a housing upswing next
year. "In addition to very low interest rates, we continue to experience strong
household formation which is fueling the entry-level market. Once we work
through the impact of job cuts and the economy stabilizes, we should see a very
nice rebound in both housing and the general economy," he said. "The government
stimulus package, insurance payouts and easy monetary policy should contribute
to consumer confidence," he explained.
For all of this year, Lereah expects 5.19 million existing home sales, up
1.3 percent from 2000, but dipping below the five-million annual rate before
rising again next year for a total of 5.17 million in 2002. For this year he
expects 898,000 new home sales – a new record, then rising to 902,000 in 2002.
The forecast for housing starts is 1.57 million units in 2001, then slipping to
1.53 million next year.
NAR expects U.S. economic growth, as measured by the Gross Domestic Product
(GDP), to be a negative 0.6 percent growth rate in the third quarter with
continued contraction of 0.2 percent in the fourth quarter, then rise gradually
to a 3.4 percent growth rate by the second quarter of 2002. Consumer price
inflation for this year will be 3.1 percent, then dip to 2.7 percent in 2002.
The association forecasts the unemployment rate to rise gradually to 5.5
percent next spring, while inflation-adjusted disposable personal income should
grow about 3.5 percent for all of 2001, then rise another 2.0 percent next year.
Lereah cautions that unknown factors could derail the recovery. "If we face
an unexpected series of bad turns such as an oil price spike, a pullback in
consumer and business spending could snowball. This could result in climbing
unemployment, rising interest rates and higher inflation, which would create a
drag on the current momentum in the housing sector," he said.