Existing home sales soar
Real estate group says market gained strength in January after record 2001.
February 25, 2002: 11:37 a.m. ET
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NEW YORK (CNN/Money) - Sales of existing homes in the United States set a record pace in January, a real estate group said Monday, as a long-standing pillar of strength in an economy in recession gained strength at the beginning of 2002 after posting its best year ever in 2001.
Existing home sales jumped a record 16.2 percent to an annual rate of 6.04 million units in January, a record pace, the National Association of Realtors said, following December's 5.2-million-unit pace. Economists surveyed by Briefing.com expected sales at a rate of just 5.2 million units.
"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," said NAR chief economist David Lereah. "As a result, some people who've held back from major commitments over the last few months have entered the housing market."
Unseasonably warm weather also helped home sales in January, the NAR said, as did continuing low mortgage rates. Low rates fueled record sales in 2001 of 5.296 million existing homes, the NAR said, a number revised upward from the group's initial estimate of 5.251 million.
U.S. stock prices rose in early trading, while Treasury bond prices fell.
Consumer spending fuels two-thirds of the U.S. economy, and it has weathered a recession that some economists think began in March 2001 and was worsened by the terror attacks of Sept. 11.
"In January, consumer confidence on expectations for the future was the highest in 13 months," Lereah said. "Since purchasing a home is a long-term investment, this bodes well for the continuing strength of the housing market this year."
To keep consumers spending, the Federal Reserve cut its target for short-term interest rates 11 times in 2001, a record for a calendar year. Fed cuts don't have an immediate impact on mortgage rates, but eventually the easier cost of borrowing spread throughout the economy.
But many economists worry that unusually strong consumer spending on homes, automobiles and other goods during the recession will "steal" strength from future quarters this year and lead to a weak recovery at best or a "double-dip" recession at worst.
The housing market is especially crucial to the economy because home equity is such an important part of consumers' balance sheets. A hot housing market has helped boost consumer confidence and ease the pain of falling stock prices.
"Real new home sale prices and existing-home sale prices have been rising very sharply," said Anthony Chan, chief economist at Banc One Investment Advisors. "When that starts to give way and we don't have the equity market picking up where housing left off, that's another reason the economic expansion will be gradual."
Also, the Fed is expected to start raising interest rates again later this year in an effort to make sure inflation - which has been virtually absent during the economic downturn - doesn't raise its ugly head. Consumers could be buying more houses now in an effort to stay ahead of rising interest rates.
"Now, with the economic recovery appearing to be somewhat in place and the central bank not lowering rates, we see people trying to get in at the gates before rates start to rise," Chan said.
The NAR said the national median price for an existing home was $151,100 in January, up 10.2 percent from January 2001, when the median price was $137,100.
And housing inventory levels rose 11.4 percent in January to 2.05 million units available - a 4.1-month supply at the current sales pace, the NAR said, and 13.9 percent higher than the 1.8 million homes available in January 2001.
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