Now that the nation's economic airplane has glided safely down to the runway, the National Association of Home Builders is looking for nothing more than a earthbound year for housing in 2001.

Next year should be “rather lackluster,” NAHB Chief Economist David Seiders predicted at the group's semi-annual construction forecast conference last week. But he also expects the market to regain some lost ground in 2002.

Though the NAHB isn't expecting any major drop in mortgage rates, Seiders told the gathering that interest charges “may move down a little bit” next year if the Federal Reserve Board cuts back on the federal funds rate, the rate financial institutions charge one another on overnight loans.

Housing starts, another key indicator, will be flat next year at an annual rate of about 1.56 million, the economist also predicted. That projection includes a 3.9 percent slide in single- family starts to 1.21 million annually and a larger 7.3 percent fall off in multi-family starts to 312,000.

With 60 days still to go, the NAHB's projections for this year call for almost 1.6 million total starts – 1.26 million singles and 336,000 multis.

“We've pretty much reached bottom and we'll stay there until the economy bounces back in 2002,” Seiders told the conference of mostly builders and building product makers.

The NAHB also is expecting small declines in sales – 5.6 percent in the new home sector, from the 884,000 projected this year to 834,000 next year, and 4.4 percent in the existing home market, from 4.9 million to 4.7 million.

On the other hand, prices, which are “moving up” at a 7 percent clip annually, will be “holding up unusually well,” the economist said.

For 2002, the NAHB is expecting starts to bounce back 2.6 percent to 1.56 million annually and sales in both the new and existing markets to move 2.5 percent higher.

Seiders bases his latest projection on the fact that “the long awaited soft landing is at hand.”

There may be a slight pick-up in economic growth in the fourth quarter, he said. But otherwise, he added, “a slowdown is underfoot right now.”

And he doesn't see anything on the horizon to undermine his forecast.

Unless the newly elected president persuades Congress to approve huge tax cuts or big spending packages – neither of which seems likely -- the economist doesn't see any need for the Fed to jack up interest rates.

“Neither side will get away with what they're talking about doing, and that will be good,” Seiders remarked. “Because if they do, it will lead to a short term bump in the economy and the Fed will probably tighten again.”

Otherwise, he added, the Fed is on hold thanks to such “unexpected” events as the runup in oil prices, a weakening Euro dollar and the sagging stock market. All of these are putting such a drag on the economy that the “Fed doesn't need to be so tough.”

Maury Harris, chief economist at Paine Webber, New York, tended to agree with Seiders' assessment. “I think the Fed's through tightening,” he told the meeting. “It will keep issuing inflation warnings, but by the spring, it will stop worrying.”

As far as housing is concerned, Harris said next year will be a “pretty good” one. “Not as good as last year,” he told the audience. “But you have a lot to be thankful for.”

However, the economist warned that the technology and telecommunication industry bears watching. Because that sector is responsible for “at least” one full percentage point of overall growth, he advised, a major slowdown could have the same effect on the economy that the commercial real estate debacle did during the last recession.

Another Wall Street economist, Michael Moran of Daiwa Securities, said the economy seems to be weathering all the shocks sent its way so far and should continue to do so. “I don't see any disasters on the horizon.” he said.

He said the oil crisis won't be as debilitating as it was in the 1970s because the United States now consumes only half the oil it did in 1950. And the stock market decline won't have any wrenching impact, either, he added, because most consumers react gradually, not suddenly or sharply, to price fluctuations.

Published: November 2, 2000

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