America is not in a recession, Federal Reserve Chairman Alan Greenspan told the Senate Banking Committee in a hearing yesterday.

``Although consumer confidence has fallen, at least for now it remains at a level that in the past was consistent with economic growth,'' Greenspan clarified. While "downside risks predominate," Greenspan indicated that the FED was ready to slash interest rates again if need be, causing many to believe that the Fed's next scheduled meeting, March 20, will see another interest rate reduction. The official forecast of the Federal Open Market Committee, a group of policy makers including Greenspan, suggests that the economy could be headed for recovery in the second half of the year.

A cautiously optimistic economic outlook is helping to fuel whispers of another coming real estate boom. Some believe that the falling economy will inevitably affect home sales in the short term. Others hint that homeowners and investors will turn to a relatively stable investment - real estate.

Lower interest rates will inevitably do two things - make home buying even more attractive to home buyers than it already is. Or, it will stimulate refinancing by borrowers who bought their homes when interest rates were 8 percent or higher. The interest rate factor alone could fuel a boom, but there are other indicators.

So what do real estate industry analysts say?

The National Association of Realtors

The economy will slow to near-zero growth (about 2.5 percent, according to the FED) and then rebound by the end of the year, predicted the NAR last week in anticipation of Greenspan's announcement. Housing will be the most stable sector of the economy although it shows signs of weakening, says David Lereah, NAR's chief economist.

"We project existing-home sales to slip 0.8 percent this year, but the total of 4.97 million units would match the third-best year on record," announced Lereah. The NAR expects new-home sales to drop 3.2 percent to a total of 873,000 units in 2001, while housing starts are forecast to decline 1.4 percent to a total of 1.58 million units this year.

As far as interest rates go, Lereah projects the 30-year fixed mortgage interest rate to average 6.8 percent this year, down from 8.1 percent in 2000, with rates slightly lower in the second and third quarters.

"If not for the aggressive interest rate cuts by the Federal Reserve, and their willingness to cut further, we'd be talking about considerably lower housing numbers resulting in a serious recession," he said.

Rising home prices also indicate that a housing boom could be brewing. Median existing-home prices are increasing at healthy rates in most metropolitan areas, according to the latest quarterly survey by the NAR.

The association's fourth-quarter metro area home price report, covering changes in 121 metropolitan statistical areas,* shows 34 areas with double-digit annual increases in median existing-home prices and only 11 areas posting generally modest price declines. The majority of areas show gains well above the overall rate of inflation, which was at a 2.4 percent annualized rate in the fourth quarter, said the survey.

The national median existing-home price was $139,600 during the fourth quarter, up 4.9 percent from the fourth quarter of 1999 when the median price was $133,100. The median is the midpoint, which is a typical market price where roughly half of the units sold for more and half sold for less.

The NAR expects the national median existing-home price for 2001 to be $144,900, an increase of 4.2 percent over last year. The typical new home price is expected to be $173,700 this year, up 5.1 percent from 2000.

Explains Lereah, "With some notable exceptions, we're seeing market conditions that are much better for home buyers. We are into a more normal market situation, although inventory levels are slightly below normal."

The National Association Of Home Builders

NAHB senior economist David Seiders says there's little indication that the slowing national economy is dragging the housing market down.

"We seem to be holding our own pretty well in the midst of this turmoil –housing numbers are still holding up reasonably well," Seiders said recently.

The NAHB is forecasting that total housing starts in the country will reach about 1.5 million units, down about 100,000 starts from 2000, but other industry observers expect that lower interest rates will reignite a housing surge at the end of 2001 and into 2002. The Blue Chip Consensus predicts that the year will end with 1.52 million housing starts. Standard and Poor's Sara Johnson told Builder magazine that one factor driving housing will be baby boomers whose demand for vacation homes will add more than 100,000 housing units each year.

Freddie Mac

At the National Association of Homebuilders convention this week, Freddie Mac Leland Brendsel told builders that while the economy is slowing, that he is not in the recession camp.

But Freddie Mac is also looking at the effect of possible rate cuts. "We expect mortgage rates could dip below 6.75 percent for a while this year," said Brendsel.

Another Freddie Mac economist predicts that they could go even lower, with Fed rate cuts. Said David Berson, "Mortgage rates could go down to 6.5 percent."

Already, uncertainty has affected rates. A recent Freddie Mac survey said that the national average commitment rate on 30-year fixed mortgages dropped to 6.98 percent, down from 7.09 percent last week and from 8.36 percent a year ago. That is the second time this year that the rate has slipped below 7 percent.

The average rate on 15-year mortgages fell to 6.60 percent last week--down from 6.66 percent the previous week and from 7.96 percent a year ago. Lenders were asking an average initial rate of 6.45 percent on one-year adjustable-rate mortgages, compared to 6.54 percent the week before and 6.73 percent a year ago.

Currently the mortgage lending market is enjoying a boom in refinancings, the biggest since 1998, which encourages some to predict that lower housing costs will free consumer dollars for other uses, including remodeling.

In his paper, Changes in Construction Markets: The Next 15 Years, Kermit Baker, AIA chief economist and senior research fellow at Harvard University’s Joint Center for Housing Studies forecasts that due to population trends such as the dramatic growth of middle-aged persons, the decline in household size, and growth of single-person and two-person households, and the growing number of heads-of-household in their 40s to 60s, (the group that spends the most on remodeling) among others, that residential trends look strong growth in residential remodeling, additions and alterations, as well as more high-end for single and two-person households.

Explained Berson to Builder magazine, "We think that this year about 44 percent of all mortgage originations will be refinancings, and that means we are going to get a substantial stimulation to the economy," he said, indicating that the impact could be as much as $50 billion.

Interest rates may hold the key to whether a real estate boom surfaces or not. While some economists believe that lowered consumer confidence will cause some buyers to shy away from purchasing a home, others believe that the low interest rates promised by the shaky economy will prove to be too irresistable.

Published: February 14, 2001

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. To contact Blanche, email her at . For more articles by Blanche, click here.