Makes you wonder why anybody bothers working anymore. It's so much easier to just buy an expensive house and live off the appreciation ....
Foundation strong for housing market
Even higher interest rates wouldn't end the boom, economist says
10:54 PM CST on Tuesday, February 22, 2005
By STEVE BROWN / The Dallas Morning News
Demographic pressures are so strong that the U.S. housing market will continue to grow even if interest rates rise, the chief economist for the National Association of Realtors predicted Tuesday.
David Lereah told a meeting in Dallas that the current housing boom is likely to last through the decade.
"The real estate market is still booming all across the U.S.," Mr. Lereah said. "You can't apply conventional wisdom to the real estate markets anymore.
"Interest rates going up don't necessarily mean real estate will go down."
That's because there are so many home buyers in the market and the motivations for buying real estate have changed, Mr. Lereah told employees of American Home Shield warranty group, which is holding a sales meeting in Dallas this week.
"There is more than just low interest rates that have set this whole real estate business on a higher level," he said.
Record immigration to the United States over the last decade is "placing enormous upward pressure on home buying," Mr. Lereah said.
"The baby boomers are buying homes at a record-setting pace," and they're in their peak earnings years, so "it's no coincidence we've had the best housing markets ever."
Many Americans are using housing as an investment and a hedge against bad economic times, he said.
"They are looking at real estate as the new gold standard of the 21st century," Mr. Lereah said. "I've seen money come out of Wall Street into real estate in big numbers."
So far, those bets on the housing market have not been misplaced.
"In the last four years, the real estate boom generated $4 trillion in additional wealth," Mr. Lereah said. "The average household earned $50,000 [from housing investments] in this period. Can you do that in the stock market?"
During the fourth quarter of 2004, a record number of U.S. cities had double-digit increases in home sales prices.
But Mr. Lereah still doesn't agree with some analysts that home values are overextended.
"The fundamentals are all there," he said. "We still have 30-year mortgages below 6 percent. If it goes to 8 percent, it won't stop the real estate expansion."
Mr. Lereah predicts that 30-year mortgages will be at about 6.5 percent by the end of 2005 and will top 7 percent next year. "Even with rates going up, I'm not nervous about real estate."
Most housing economists are forecasting a slight downturn in home sales this year if rates rise. But home sales will remain at a very high level. Price increases are also expected to slow.
"Instead of 22 percent price appreciation in Washington, D.C., we'll get back to 6 percent," Mr. Lereah said. "Instead of 54 percent price appreciation in Las Vegas, we'll get back to 10 percent."
Home sales prices in North Texas have already flattened.
And nationwide, applications for home mortgages are already down. So far this year, home purchase loan applications are running more than 7 percent behind 2004, according to a new report from Fannie Mae chief economist David Berson.
Mr. Berson said the mortgage numbers are "somewhat troublesome in terms of their implications for the overall housing market outlook."
At the same time, January housing starts and sales were both up.
"Everybody is scratching their heads," Mr. Lereah said. "Conventional wisdom doesn't apply to real estate anymore." |
