Recession
& Recovery
You already know that 2001 was a banner year despite the the terrorist attacks and a moderate recession. But there's good news for housing and it may already be here...
The recession, which began in March of 2001, was quite moderate compared to other recessions in U.S. history.
What follows a moderate recession is a slow, modest recovery. Some analysts are suggesting that the recession ended in December., 2001 and we are currently in the recovery period right now.
Here's a recap of several 2001 housing related factors and what forecasters are saying about 2002 activity.
Mortgage rates
The average rate for a 30-year fixed-rate mortgage in 2001 was 6.97 percent, the lowest annual average rate since 1998.
As the economy rebounds this year, mortgage rates are expected to rise. The 30-year fixed-rate mortgage should average 7.3 percent in the second half of the year. Still, the slightly higher mortgage interest rates aren't expected to be a significant affordability constraint for home buyers this year because rates still will be very low on a historical basis.
Housing Affordability
NAR's composite Housing Affordability Index was 146.8 during the fourth quarter of 2001, up 9.4 percentage points from 137.4 reported in the third quarter. In addition, the HOI is at its highest point since 1973 when it reached 147.9.
The index shows the nation's typical household had 146.8 percent of the income needed to purchase a home at the fourth quarter median existing-home price, which was $148,000.
The fourth-quarter median family income was $53,914, which would qualify to buy a home costing $217,300.
Unemployment
Weaker labor market conditions will have a mild dampening effect on home sales in the first half of the year. National unemployment is expected to peak at 6.1 percent in the second quarter before easing in the second half of the year. As job creation accelerates in the second half of the year and consumer confidence strengthens, home sales will strengthen.
Existing Home Sales
Nationally...there were a total of 5.3 million existing home sales in 2001, up 2.7 percent from 5.1 million in 2000 and beating the 1999 record of 5.21 million.
The median sales price for 2001 was $147,500, up 6.1 percent from $139,000 in 2000. The median price in December in the Midwest was $129,200, up 6.7 percent from a year ago.
In Ohio, we sold 112,113 homes in 2001, a 2.9 percent increase over the 108,963 units sold in 2000, and beating 1999's record of 111,112. Ohio's average sales price of $140,967 was 2.7 percent higher than last year.
Locally...Realtors® sold 20,779 homes this past year in the Columbus area, up 7 percent from 19,332 in 2000, and 19,577 during our record 1998 year.
Our local median sales price for 2001 was $135,700, up 4.9 percent from 2000. The average sale price was $153,096.
Almost $3.2 billion in residential homes were sold in 2001, up from $2.9 billion in 2000.
For 2002...
Solid economic and housing sector fundamentals mean the pace of home sales this year should remain near historic highs. Existing-home sales nationwide are expected to total 5.2 million this year, a decline of 1.1 percent from last year's record of 5.25 million.
National median sale prices are expected to rise 4.5 percent to $154,200. Price appreciation may be attributed to relatively low inventories of homes for sale in many areas of the country.
New Construction
Total construction for 2001 nationwide advanced 3 percent to $485.2 billion, marking the 10th straight year of expansion. The 3 percent increase followed growth of 5 percent in 2000 and 11 percent in 1999.
Sales of newly built homes hit a record high 900,000 units in 2001, up from 877,000 in 2000. The median sales price of $174,100 was 3 percent higher than 2000's price of $169,000.
In 2002...new-home sales are expected to decline about three percent to number 874,000 units.
However, the national median sale prices are expected to rise 5.2 percent to $183,100 for new homes.
Given that the average buyer spends $8,900 on housing-related furnishings and property alterations in the year following a new home purchase, new home construction provides tremendous stimulus to the country's Gross Domestic Product and employment base.
Condo Sales
Sales of existing condominiums and cooperatives set an annual record for the sixth consecutive year in 2001. Condo and co-op resales totaled 738,000 last year, up 3.8 percent from the previous record of 711,000 sales recorded in 2000. The median price for an existing condo last year was $122,600, up 9.7 percent from $111,800 in 2000. The median condo price in the fourth quarter was $125,000, 9.8 percent higher than the price in the prior-year quarter.
Commercial Sales
According to the NAR Commercial Real Estate Quarterly Report, commercial markets will improve gradually. With the exception of apartments, demand for commercial properties will be slow to respond to the economic upturn and we may not see general growth in the commercial sector until late 2002. In fact, it may be 2003 before most markets witness significant space absorption.
NAR projects losses in office-based employment to persist through the second quarter of 2002, with modest gains expected in the second half of the year. Net absorption of office space should rise from the current rate of contraction to a positive 25 million square feet for the year as a whole. Despite slowing construction, 111 million square feet of new space will still come on line. Slow absorption and high supply growth are expected to raise vacancy rates to 13.9 percent for 2002. Increasing vacancies will cause rents to drop by 3.5 percent this year as owners compete for tenants.
NAR projects the strong housing market will encourage renters to buy homes, while higher unemployment will inhibit the creation of new renter households in the beginning of 2002. However, the rental market is expected to gain momentum during the second half of the year. Net absorption for 2002 is expected to total 34,000 units, while completions of new space will remain strong at 157,000 units. This will cause the vacancy rate to rise to 6.8 percent this year, while average rent is projected to slip 0.1 percent in 2002.
First-Time Home Buyers
Low interest rates have been opening the door to low- and moderate-income buyers, allowing many new families to become homeowners. Immigrants and minorities are a significant portion of the entry-level market. When they can achieve the American dream of homeownership, it allows existing owners to sell their homes and boosts all segment of the market.
At the end of 2001, the NAR First-Time Homebuyer Affordability Index showed a typical first-time buyer household, aged 25 to 44, with an income of $36,720, had 85.2 percent of the income needed to purchase a typical starter home with a 10 percent down payment.
The median starter home price was $125,800, during the fourth quarter, and the median-income first-time buyer could afford a home costing $107,200.
Advice to your buyers and sellers
Sellers can benefit from the current market. Home prices of properties in the upper end of the market -- particularly homes in the over one million dollar range -- have softened. But, in many areas, entry-level housing prices are holding steady. For buyers who are moving from a lower-priced home to a more expensive home, this means that they could pay less for their new home than they would have last year. To further sweeten the deal, the price of the home that they are selling may not have declined at all, or very little.
Homeowners who have no interest in buying or selling are realizing significant savings through refinancing. Keep in mind that interest rates may start rising again by mid-2002.
There is a lot of uncertainty in the current financial market. If you are working with buyers, make sure they have a long-term horizon. Home prices could soften further before they rise again. This is a natural part of the economic cycle. It only becomes a problem if they have to sell in a down market.
Sources
Statistics and predictions were taken from the following: CBR MLS, National Association of Realtors®, National Association of Home Builders, Freddie Mac, F.W. Dodge reports, and the Homeownership Alliance, Bryan Jordan, Economist for Banc One Investments Advisors
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