Housing sales fall off in October
December 9, 2002,
Concerns over a potential housing bubble, which have arisen in recent weeks, were reinforced after the release of October's major housing data.
October's existing home sales did manage to finish ahead of September. Resales grew by more than 6 percent over the September total, reaching 5,770,000 units on a seasonally adjusted annualized basis.
However, the industry's key trade associations were quick to refute talk of a housing bubble. Regarding starts, said Gary Garczynski, president of the National Association of Home Builders, "It would be a big mistake to equate [the October] report with some kind of bubble effect. Builders simply took a breather after a feverish pace of activity in September. While the dropoff was more than expected, single-family housing production remained above the third quarter's robust 1.34-million-unit pace."
Garczynski also pointed out that building permits actually increased in October, to 1,760,000 units on a seasonally adjusted annualized basis. He added that builders delayed the start of new housing projects last month due to unseasonably wet weather in all regions but the West. "We wouldn't be surprised to see a bump in starts with a return to normal weather patterns," he said.
The National Association of Realtors said the growth in resales was "a demonstration of the underlying strength of the housing market."
NAR's president, Cathy Whatley, noted that low mortgage interest rates (which are still hovering around the 6 percent level) continue to stimulate demand for homes. "Right now, there's very little pressure on interest rates to move much higher," Whatley said, "so we'll have favorable affordability conditions for some time to come."
Analysts of the housing market aren't yet ready to forecast a toppling of this economic sector, either. Brian Wesbury, chief economist for Griffin, Kubik, Stephens & Thompson Inc., called the starts fall "an aberration. While housing may not return to its September highs immediately, mortgage rates are very low and housing is the least taxed investment in the U.S. We do not agree with those who think that a bubble exists in the housing market, and we view the current recovery as sustainable."
Asha Bangalore, economist for Northern Trust, also keyed her commentary on mortgage rates in discussing the gain in resales. "The historically low mortgage rate environment is an important factor maintaining the momentum of the housing market," said Bangalore.
She did sound some warning about the months to come, however. "It appears that sales of homes may have reached their peak," Bangalore said. "The extra boost from the housing sector that typically occurs in the early phase of a recovery is missing because the housing sector did not register a slowdown when the rest of the economy shifted to a recessionary pace in the first three quarters of 2001."
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