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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: CAtechTrader who wrote (25271)	12/15/2000 12:11:42 PM
From: SouthFloridaGuy	Read Replies (1) \| Respond to of 65232

Apparently they wrote a conflicting article the next day. This doesn't jive with your theory of empty department stores. Things might not as robust as last year, but they are certainly strong by any barometer. Published Saturday, Dec. 9, 2000, in the San Jose Mercury News Housing prices are rising at their fastest rate in 12 years BY KENNETH HARNEY WASHINGTON -- Federal Reserve economists may be detecting signs of the long-expected ``soft landing'' slowdown, but you won't find even a hint of chill in the latest home-price appreciation data. To the contrary: Housing prices across the country are defying the trend -- rising faster now than at any time in the last 12 years. The typical U.S. home increased in value by 7.3 percent from the third quarter of 1999 through the comparable period this year, according to the latest House Price Index, released Dec. 1. The new report from the Office of Federal Housing Enterprise Oversight documents stunning gains: Nearly 30 major metropolitan markets racked up housing appreciation rates of close to 1 percent per month during the last 12 months. Several California markets saw gains of 24 percent or more during the year, roughly a 2 percent increase in value per house per month. San Jose led the way with a 25 percent increase in appreciation compared to the third quarter of last year, followed by Santa Cruz at 23.3 percent. That is hot, hot, hot -- especially at a time when so many other economic indicators are trending cooler. How can real estate be at its inflationary high point for the decade while the rest of the economy clearly is ebbing? The answers add up to real money for anyone who owns a house or is contemplating buying one. Housing values are tied into consumer demand for houses. Demand, in turn, is part consumer appetite, part consumer ability to be able to afford one. But demand is only part of the story of home values. There has to be enough supply, enough homes ready for sale in the market to satisfy demand. Combine high demand with near-record tight supply, and what happens? Boom! You get record-setting home appreciation numbers, despite the fact that the rest of the economy is softening. That's what's been happening this year in most parts of the country. Senior Fannie Mae economist Orawin Velz points out, for example, that the supply of existing homes for sale nationwide has been lower than in any year in the past decade -- currently about a four-month inventory. Typical supplies during much of the 1990s for resale homes ranged from six to nine months, by contrast. Earlier this year, the supply dropped well below four months, triggering multiple-contract, bidding wars. Tight supply and high demand are also squeezing the new home construction market: Currently, builders nationwide have just over a four-month supply of units -- well below the past decade's average. There are other factors keeping the pressure on values. Michael Carliner, an economist with the National Association of Home Builders, notes that while the cost of mortgage money today is higher than it was earlier in the economic cycle, ``it is still at a very moderate level'' historically. Not only is 8 percent money affordable, but it comes in an unprecedented variety of packages designed to empower would-be purchasers -- zero down-payment loans, 3 percent down-payment loans, mortgages that cover your closing costs, etc. All of that helps whip up effective demand. Carliner also believes that there is another, subtler trend under way that stokes appetites: In many parts of the country, municipalities are lowering their property tax levies on homes, or at least cutting their dependence on homeowners for revenue to fund municipal budgets. That reduces the monthly cost of owning a home and stimulates demand for bigger, costlier houses. How long can this counter-cyclical, home-appreciation fiesta keep going? Fannie Mae economist Velz guesses that appreciation rates will begin cooling sometime in the first half of 2001. But even then, she says, housing value gains should be strong relative to the rest of the economy. The bottom line for new buyers and owners: Take good care of that house. It's the best all-weather investment you've got. --------------------------------------------------------------------------------