Housing market building up steam

Don Hogsett, June 25, 2001

Washington — Offering a glimmer of hope for a beaten-up American textiles industry, the U.S. housing market should continue its robust performance through the balance of the year as a stalled-out economy starts to pick up steam and long-term interest rates remain at low levels, said housing finance giant Fannie Mae.

David Berson, chief economist for Fannie Mae, said, "Total home sales, while not quite a record this year, will be very close."

Providing support to the housing market, said Berson, will be an extended period of stable long-term interest rates as the economy gains strength and inflation remains low.

In his semi-annual economic, housing and mortgage outlook, Berson said, "Both new and existing sales are running at all-time highs for the first four months of 2001. Indicators of future home sales remain relatively upbeat, with the monthly housing index from the National Association of Home Builders survey nearly unchanged over the past six months and purchase applications in the weekly Mortgage Bankers Association survey rising again to near-record levels."

Following steady gains in January through March, home sales dipped in April, Berson noted, but even so the outlook is strong. Despite the April dip, he noted, both new and existing home sales "would be at record levels in 2001 if sales continued at the April pace for the entire year."

And even with the April slippage, "the strong pace already in place, combined with the positive survey data, indicates that 2001 will be a strong - and perhaps record — year for housing market activity," he said. Total home sales are expected to reach 5.84 million units, down 2.5 percent from 5.99 million last year. Existing home sales are forecast to dip by 3 percent, to 4.93 million units, while sales of new homes are expected to climb to a record level of 889,000 units.

Scoping out the interest rate situation, Berson said, "The Fed has now eased five times this year by a total of 250 basis points — and it probably isn't quite done yet," with another 25-basis-point cut widely expected late in June. "Long-term rates have been moving upward over the past couple of months, as financial market participants look ahead to a rebound in economic activity and a reversal in Fed policy by early next year."

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