According to housing sector authorities, sales are weakening, but values are appreciating. Meanwhile, interest rates are approaching record lows.

The FDIC has released the results of its July survey of senior examiners and asset managers, which shows some weakening in the real estate markets, particularly for local offices, from January through June 2001.

Survey respondents were asked if general conditions for U.S. real estate markets (as characterized by vacancy rates, market prices, or the pace of sales) had changed in the first six months of the year. The percentage of respondents reporting no change were clearly in the majority for most property markets: single-family (53 percent), multifamily (65 percent), retail (63 percent), and industrial (71 percent).

For most property markets, conditions worsened, but single-family markets had the highest proportion of respondents noting better conditions, at 20 percent, followed by 14 percent who observed improving multifamily markets. Reports of worse conditions were more frequent, at 27 percent for single-family and 21 percent for multifamily.

Yet the report stopped short of calling the weakness a downturn, stating that supply and demand showed that most property markets were reported to be "in balance."

The most favorable conditions were observed in the single-family home markets, with reports of improving conditions more frequent than in January. Sales volumes and home sale prices were reported to be higher than six months ago for both existing and new homes, said the report. In addition, construction was on the rise for single-family (22 percent) and multifamily (17 percent) properties.

A recent report from Freddie MAC suggests that housing continues to appreciate while interest rates remain low.

Fixed-rate mortgages capped off a five-week streak below 7 percent. In the week ending Sept. 7, 30-year fixed rates dropped to 6.89 percent from 6.92 percent the week before.

"Housing is appreciating at a 6.9 percent annualized rate," said Robert Van Order, chief economist at Freddie Mac. "When this is coupled with the current historically low mortgage rates, the atmosphere for a healthy housing market continues."

Van Order echoed NAR chief economist David Lereah in predictions that housing will ease from unsustainable levels of growth, but will still remain above the rate of inflation.

"In other words, we expect to see the housing industry remain robust in the foreseeable future, with housing retaining its luster as a sound investment," Van Order said.

Only days before, the NAR predicted that housing will slow and pick back up in 2002 to set new housing records.

Homebuyers and sellers may want to keep their eyes on employment rates, where news is also mixed.

The U.S. unemployment rate rose in August to its highest level in nearly four years, with companies releasing 113,000 workers. Manufacturing has shed more than one million jobs since mid-year a year ago.

However, service-producing areas of the economy added 23,000 in August.

U.S. economists predict that the news will prompt further overnight rate reductions from the Federal Reserve Bank.

Published: September 10, 2001

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