Housing sales start strong in '02

Don Hogsett, Staff Staff, March 18, 2002

Still surging ahead in the midst of a tricky economy, the broad U.S. housing market put up another set of strong gains in January, with only the highly volatile market for new homes beating a retreat.

Still buoyed by low mortgage rates, sales of existing homes — the biggest slice of the housing pie — got the new year off to an unexpectedly strong start, jumping up by 16.2 percent, to a seasonally adjusted level of 6.04 million units, the National Association of Realtors (NAR) reported. Suggesting that the housing market may be stronger moving into 2002 than some analysts had been forecasting, the January jump marked the first time that sales of existing homes have reached the six million mark. It's also the single largest monthly sales gain on record, said the NAR.

David Lereah, the NAR's chief economist, said low interest rates are only part of the picture. "We've had favorable housing affordability conditions for some time, but what's new is the effect of a gradual increase in consumer confidence, combined with a turnaround in the economy. As a result, some people who've held back from major commitments over the last few months have entered the housing market."

Pointing to another beneficial factor, Lereah said, "In addition, we've had unseasonably mild weather in much of the country that has encouraged potential buyers to move from shopping on their computers to visiting real estate offices and homes for sale."

Pointing to future strong housing activity, housing starts exceeded expectations as well, rising by 6.3 percent, the fastest pace in almost two years, to a seasonally adjusted annual rate of 1.7 million units, the Commerce Department reported. Starts of single-family homes rose by 3.5 percent, their highest rate since December of 1999. Multifamily starts rallied as well, jumping up by almost 19 percent. And one more gauge pointing to future strength in the housing market, building permits issued, rose by 3.1 percent in January to a seasonally adjusted annual rate of 1.7 million.

Gary Garczynski, president of the National Association of Home Builders (NAHB), gave credit for the increase to low interest rates and solid home-price appreciation. "These are excellent incentives for home buyers, and they are especially driving first-time purchasers to the market."

The only segment of the housing market to disappoint was the highly volatile market for new homes. There, sales fell back almost 15 percent to a seasonally adjusted annual rate of 823,000 units, the Census Bureau reported.

"We're seeing things slow down from what had been an extraordinary sales pace at the end of last year," said the NAHB's Garczynski. "Even so, there is no evidence of fundamental weakness in the market, and higher numbers in February could substantially offset this latest decline."

The new home figures are subject to frequent and substantial revision and wide fluctuations, and Garczynski noted that the Census Department revised its numbers for new home sales substantially upwards during October, November and December of last year in its latest report, noting that December's revised pace of 966,000 units was particularly strong.

Garczynski said, "Our latest surveys had indicated that some retrenchment in builder expectations following the rebound our industry experienced from the effects of Sept. 11. Things are likely to smooth out in the year ahead, however, and the NAHB is forecasting that total new home sales in 2002 will about equal 2001's record-setting pace of 906,000."

Housing by region
Month-to-month % change

Existing home sales Housing starts New Home sales
Northeast 16.4% 8.7% 9.0%
Midwest 8.3 -0.3 -0.6
South 16.1 14.4 -22.1
West 23.3 -3.6 -17.0

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