With the stock market flipping back and forth, nervous investors are starting to move their holdings to more solid ground - real estate, that is. This will be especially true in many of the major cities where economic and employment growth has been on the upswing.

Although home sales slowed for the month of August, the downturn is typical of the back-to-school season. But the National Association of REALTORS predicts that home sales are continuing to trend to break records by the end of the year in most areas.

Another report, just released, echoes that optimism. The Home Price Forecast, a quarterly report prepared for the Wall Street Journal by Case Shiller Weiss, an economic research firm in Cambridge, Mass., offers encouragement for the real estate industry in the face of volatile stock market ups and downs. The report's findings are that despite stock market teetering, home prices are outpacing inflation in most major cities.

The forecast reveals the predicted and actual changes in the latest period for which data was available - May 1997 to May 1998. The report also forecasts price changes for the next 12 months, ending October 1999.

According to the forecast, as long as the U.S. economy remains healthy and interest rates remain near their 30-year lows, home prices will continue to climb. A dip in stocks could even stimulate more investment in real estate as investors move their holdings from stocks to properties. In fact, in some cities, REALTORS should encourage buyers who are "on the fence" to go ahead and take the plunge, or prices will only get more out of reach.

Some cities are still experiencing record inflationary prices in homes. In the Seattle market, home prices rose 11.6%, much higher thatn the 6.7% predicted by the economists. Employment growth has been about 3.5%, according to the Wall Street Journal, which is enough to push prices up 10.2% by next fall.

San Diego and Denver also showed astounding increases. In San Diego, prices fueled by expanding technology businesses leapt 11.6% this year and are expected to rise an additional 10.3% for the same period next year. In Denver, the construction industry fueled a 7.2% home price increase, 2.8 percentage points higher than predicted growth with home prices reaching a median of $164,350 by next fall, a 6.6% increase from this year, according to the Journal.

The report does predict that two cities, hot this year, could cool down next year. Atlanta may be being overbuilt and employment growth is slowing, which will keep price increases to about 4.8% for next year. Minneapolis has skyrocketing employment growth but a shortage of workers, which will spark a decline in home price increases to 5% from 5.5%. But, the trend toward price increases is still very strong.

The Home Price Forecast uses information gathered from recorded sales, employment growth, household formation and residential property to calculate their predictions.

This information could also be useful to sellers who are considering a possible "move-up" or scale-down home. With prices rising, a seller may be able to sell with enough gains to choose a finer home and take advantage of the 30-year record low interest rates.

Published: October 5, 1998

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