Slowdown Seen As Only Modest

Slowdown Seen As Only Modest

Among the key statistics released by government agencies and industry-related trade associations in recent weeks were the following:

Existing-Home Sales
The pace of existing single-family home sales "has been relentless," even in the face of increases that have seen mortgage rates rise to levels that are about 1.5% higher than a year ago, the National Association of Realtors said last month. According to the Washington, DC-based NAR, the latest figures for resales reflect an annualized level in 2000 that would make the year the third-best year ever for existing single-family homes. Existing-home sales were down 9.8% in the first quarter of 2000, compared to the record-setting pace of a year ago. Despite the decline, and recent interest rate increases, home sales "continue to be brisk," said the NAR, adding that it expects "a busy summer for the housing sector" thanks to "steady consumer demand."

Cabinet & Vanity Sales
Sales of kitchen cabinets and bathroom vanities rose 4.3% in April over the same month in 1999, the Kitchen Cabinet Manufacturers Association reported. The Reston, VA-based KCMA said that manufacturers participating in the association's monthly "Trend of Business" survey also reported that sales were up 9% in the first four months of 2000 compared to the same January-April period last year.

Home Prices
The price of new homes continue to rise in part, due to the continued strength of the housing market and, in part, due to a continued increase in the level of amenities in new homes, the National Association of Home Builders reported last month. the Washington, D.C.-based NAHB noted that the average sales price of new homes rose 6% between the first quarters of 1999 and 2000, although the "quality-adjusted" index of new-home prices rose only 2% in the same period.

Interest Rate Hikes Seen Cooling Housing Market

Washington, DC With the cost of borrowing expected to rise as interest rates increase, housing production will gradually slow to about 1.6 million units this year down from the "exceptionally strong" 1.68 million homes that were started in 1999, the National Association of Home Builders predicted.
Housing analysts at the recent 60th Semiannual Construction Forecast Conference here said that a healthy, sustainable growth rate for the U.S. economy would be in the 3.5%-4% range this year well behind the 7.3% rate of GDP growth in last year's final quarter and the 5.4% rate at which the economy expanded in the first quarter of 2000.

"The Fed cannot be beaten," said NAHB chief economist David Seiders, adding that the Federal Reserve will likely implement several additional interest rate hikes by this fall, increasing rates on long-term, fixed-rate mortgages to 8.75% and "making it more difficult for buyers at the low end of the market to qualify for a loan."

Those expected interest rate hikes, Seiders said, will likely slow housing production both this year and in 2001, when housing starts should decline to about 1.5 million units.

"But those are still big numbers," Seiders said of housing projections for 2000 and 2001.

According to Joseph Hu, director of research for Standard & Poor's, increases in home equity financing could have serious repercussions for the economy as the Fed continues to push up interest rates.

Hu noted that 68% of today's homeowners have at least some house-related debt 28% higher than just 10 years ago while the greatest portion of those borrowers (43%) are using the money to make home improvements. In contrast, 21% are using the money for debt consolidation, 8% for investment, 6% for education, and 5% for vehicle purchases and maintenance.

As the Federal Reserve tightens its grip on monetary policy, both housing activity and equity financing will eventually decline, Hu noted, warning that "this could have more impact than the Fed intends because the amount of money involved in equity financing is huge."