Existing home sales should stay strong

WASHINGTON — Although the U.S. housing market is expected to cool off somewhat, especially after the breakneck pace of recent months, sales of existing homes are expected to remain strong in 2002 despite the threat of rising interest rates, said David Lereah, chief economist of the National Association of Realtors (NAR).

"Even with sales easing off the big numbers at the beginning of the year, we expect existing-home sales to rise 0.3 percent this year to a total of 5.31 million, edging out the record of 5.30 million in 2001," said Lereah.

A gradual economic improvement should result in generally modest increases in interest rates, he added, helping to keep the market strong. "As the economy improves this year, the Federal Reserve will adjust its policy from accommodation and allow short-term interest rates to increase about 1 percentage point," said Lereah. "The rise in mortgage interest rates will be a more modest increase. Since interest rates are so low right now, in historic terms, this will not have much of a braking effect on housing markets. The 30-year fixed mortgage interest rate should reach 7.5 percent by the end of the year."

While the market for existing homes is expected to hold strong, new home sales should decline by 4.4 percent, and housing starts should edge up by 0.4 percent, Lereah forecast.

The median existing-home price is expected to climb by 5.1 percent this year, to a level of $155,300, said Lereah in the NAR's annual forecast. The typical price for a new home should rise by 6.1 percent, he said, to $184,700.