"Things are good and they're going to stay good," says James Smith, chief economist for the National Association of REALTORS®, sees the coming year. "The economy is so incredibly good that everyone can find a job. And if you don't like the one you have, you can find another one."

They just won't be as good, at least not for housing.

On the strength of still relatively low loan rates, Smith predicted this week that existing home sales will come to close to hitting the 5 million mark again in 2000 and go down in history as the third best year on record. Still, it represents a decline of 5.1 percent from the all-time high 5.18 million resale house which will have changed hands this year.

Other key housing indicators are expected to follow similar tracks, NAR says: New home sales should drop just 4.9 percent to 848,000 million, and housing starts should slip only 3.6 percent to 1.61 million.

One key to continued prosperity in housing is mortgage rates. As long as they stay below 8 percent, all thumbs are up. "Eight percent is the line of demarcation," Smith said at a news conference at the National Press Club. "As long as rates stay below that level, it will be a good year. Even at 7.97 percent, people will keep shopping."

But equally as important is stability in the mortgage market, the economist added: "As long as rates remain pretty stable, it gives buyers a chance to shop."

Actually, Smith thinks rates could dip below 7 percent "between now and the end of January," thanks to a huge flow of capital into the United States from investors wishing to protect their money from possible Y2K disasters in their own countries. Few places have taken the precautions to prevent calamities that America has, he explained.

Of course, he made the same prediction at NAR's annual convention in Orlando in November, only he said it would happen by the end of December. It hasn't, so now he's hedging his bets a bit by pushing his forecast back a few weeks.

For the year as a whole, though, he forecasts an average of 7.2 percent on fixed-rate mortgages for the year, far below the point when he says the housing market begins to unravel.

Smith also doesn't think the Federal Reserve Board will tighten monetary policy again, at least not until after the first quarter. Other analysts think otherwise, saying the central bank will boost the federal funds rate the interest rates financial institutions charge one another on overnight loans in February. The only reason the Fed didn't do that at its monthly meeting this week, they point out, was to allow the markets to pass into the new century with as little disruption as possible.

But the NAR economist said economic growth in the first quarter will be less than 1 percent because most businesses and individuals spent themselves out in this year's fourth quarter to build up inventories as a protection against possible computer failures. Growth in the first three months will be "way to weak" for the Fed to raise rates, Smith said.

For interest rate news, check out the Realty Times Interest Rate Watch

Published: December 23, 1999

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