If the news of a sharp drop in new housing had come on any other day besides Fed Chief Alan Greenspan's testimony before the House Committee on Financial Services, the market reaction might have been very different. Instead the Dow soared, the Nasdaq picked up a cautious gain, and mortgage interest rates rose slightly yet remained near attractive 30-year lows after Greenspan's remarks that the economy was rising out of recession, but a recovery would be subdued.

“Despite the disruptions engendered by the terrorist attacks of Sept. 11, the typical dynamics of the business cycle have reemerged and are prompting a firming in economic activity,” Greenspan testified. "An array of influences unique to this business cycle, however, seems likely to moderate the speed of the anticipated recovery.”

One area to watch is housing sales, which may slow in 2002 after record sales were reported by both the National Association of Realtors and the National Association of Home Builders in 2001.

Resales reach record highs in January

On February 25th, the National Association of Realtors reported that existing single-family home sales surged 16.2 percent to an unprecedented monthly high (seasonally adjusted annual rate) of 6.04 million units, up from 5.20 million in December. The previous monthly recorded was an annual rate of 5.49 million units in August 2001. The previous largest monthly increase was set in May 1995 at 13.0 percent.

At the time, David Lereah, NAR's chief economist, said low interest rates were only one of many factors contributing to record sales. "We've had favorable housing affordability conditions for some time, but what's new is the effect of a gradual increase in consumer confidence combined with a turnaround in the economy. As a result, some people who've held back from major commitments over the last few months have entered the housing market," he said. "In addition, we've had unseasonably mild weather in much of the country that has encouraged potential buyers to move from shopping on their computers to visiting real estate offices and homes for sale."

"In January, consumer confidence on expectations for the future was the highest in 13 months," added Lereah. "Since purchasing a home is a long-term investment, this bodes well for the continuing strength of the housing market this year."

NAR President Martin Edwards Jr. said long-term demographic trends also are contributing to record sales. "The United States attracts a large number of immigrants at the same time children of the baby boom are entering their prime years for buying a home. The result is a growing number of households with the same goal in mind – the American dream of homeownership," he said. "The economics of housing as an investment is yet another factor. There have been reports lately about rising home values continuing to surpass returns in the stock market, making housing and even sounder investment."

New home sales plummet in January

In stark contrast to the performance of existing home sales, the Commerce Department reported a 14.8 percent drop in sales of new single-family homes in January to 823,000.

As existing home sales set a performance record, new home sales were the lowest they had been since June 2000, exacerbated by the steepest one-month percentage drop in eight years.

"Given how strong January existing home sales were, the surprisingly sharp decline in January new home sales may be more an adjustment to the robust December sales pace than the start of a weakening trend in housing," said Joel Naroff, president of Naroff Economic Advisors in a published news report. New home sales are recorded with buyers' commitments, while resale home sales aren't recorded until after closing, said some pundits.

In contrast, home starts were up 6.3 percent in January, mirroring the positive home sales growth of existing homes in the south and west.

Is the contrast in reports by the NAR and new home sales significant? Not according to Lawrence Yun, senior economist for the NAR. "Any monthly housing statistic has some volatility so reading any single month's data to see an underlying trend won't tell the whole story."

Explains Yun, "The new home sales measure contracts from buyers, so when someone is signing a contract it is recorded as a sale. Existing homes are only recorded at closing, which may take a month or longer in reporting, so there is a lag time in publishing the data."

"When one looks at new home and existing home sales on a month-to-month basis, only three times did existing and new homes sales move in the same direction in 2001, but both new and existing home sales set a new record in 2001."

So what is the home market really doing? One outlook may be in mortgage applications, since most new home and existing home buyers require loans.

According to the Mortgage Bankers Association, mortgage applications rose 4 percent through February 22nd, led by applications to buy homes, while refinancings remained flat.

The economic forecast by the NAR predicts that mortgage rates will be slightly higher in 2002, averaging 7.1 percent in the first quarter and moving up to 7.3 percent in the second half of the year.

The NAR seconds Greenspan's prediction that economic growth will be weak. In the early part of the year, home sales will be modestly below last year's record first half pace, which will result in home sales coming in at slightly lower levels in 2002 compared to last year.

The National Association of Homebuilders believes that housing will continue to be central to the nation's economic recovery, due to continuing low mortgage interest rates (near 30-year lows,) strong population growth resulting in the formation of 1 million new households a year, and the fact that housing remains a key investment in any household's portfolio of wealth.

Published: February 28, 2002

Use of this article without permission is a violation of federal copyright laws.

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.