• David Gill

Low rates keep buyer demand firm

WASHINGTON — All three major housing numbers softened in February, compared with the January figures. Yet observers of the housing industry, from both inside and outside, saw February's results as the portrayal of an industry still close to high gear.

It's hard to argue with their appraisals in looking at where the numbers have settled. Existing home sales are holding above the 5 million mark, new home sales are still more than 900,000 and housing starts continue between 1.6 million and 1.7 million — all near their historical highs.

Resales finished February at 5,180,000 units on a seasonally adjusted annualized basis, off a scant 0.4 percent from the January figure. Starts slipped by the identical 0.4 percent, to 1,647,000 units on the same basis. February's new home sales were 911,000 units on the same basis, down 2.4 percent from January.

So never mind about talk of a slumping U.S. economy, said officials inside the housing industry. Not that's it's never been better; but the industry as a whole continues to be strong.

"So far, housing continues to be one of the few bright spots in the national economy," crowed Bruce Smith, president of the National Association of Home Builders. Talking about starts in particular, Smith said, "Our latest surveys indicate builders are still relatively upbeat about conditions in the housing market, primarily because low interest rates on home mortgages are keeping buyer demand firm."

David Lereah, chief economist with the National Association of Home Realtors, also cited low interest rates as the key. "The interest rate on a 30-year, fixed-rate mortgage has dropped one and one-quarter percentage points in the last year. That means there about 300,000 additional households that can afford to buy a home today that couldn't qualify for a loan a year ago," he said.

For sure, plummeting interest rates could keep housing — if not the rest of the U.S. economy — on an upward track in 2001. The Federal Reserve continues to pound on the federal funds rate, and the housing sector continues to cheer it on. In February, the average for a 30-year, fixed rate mortgage was slightly more than 7 percent; in March, this average slipped below the 7 percent bar.

The cheers for housing aren't confined to industry insiders. The financial community has noted this sector's strength as well. "Starts have been on an uptrend since August," said Dana Johnson, housing industry analyst with Banc One Capital Markets. "This is yet another indicator that argues against a recession taking hold."

"Falling mortgage rates have maintained the momentum of the housing sector," said Asha Bangalore, economist with Northern Trust. Even though the unemployment rate has risen slightly since the beginning of the year, "the [current] historically low level of unemployment is an important factor that is contributing to the pace of home sales," Bangalore continued.

Sam Bullard, economic research analyst with First Union Economics Group, said the two sales reports (both of which were released on March 26) "confirm that the residential housing market is remaining solid despite the slowing economy. As long as the housing market continues to hold on to these high levels, a full-fledged recession is unlikely."

Housing by region Month-to-month percent change

Existing home sales Housing starts New home sales
Northeast -3.0 +21.0 +20.3
Midwest +1.8 -2.7 -18.9
South -2.8 +1.5 +0.5
West +3.1 -5.6 -1.5

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