Unemployment, higher energy prices and other economic woes, along with saber rattling are prompting consumers to dig in, but ever lower mortgage rates permit home prices to march onward and upward.

The so-called real estate bubble is as elusive as Saddam Hussein's weapons of mass destruction, according to a close confidant of Alan Greenspan.

"The rise in housing prices and the increase in household investment in houses and consumer durables do not appear out of line with what might be expected in the current environment.." said Federal Reserve Board Governor Donald L. Kohn at the recent Conference on Finance and Macroeconomics. Sponsored by the Federal Reserve Bank of San Francisco and Stanford Institute for Economic Policy Research. The Feb. 28 conference was held in San Francisco, CA.

Recently appointed Kohn went on "...household investment and prices are likely to soften some relative to recent trends, but not to break precipitously. Houses and cars would not be providing the impetus to economic activity they often have in past recoveries, but they do not appear set to replicate the experience of fiber-optic cable."

As the economic doldrums drag on, with war threatening to exacerbate conditions, Kohn echoed the sentiments of a growing number of experts -- consumer confidence measures a general disposition, a sentiment that can be either fleeting or permanent. Buying homes is a more finite and tangible action. Consumers are wary about the economy, but it hasn't stopped them from buying homes.

The Conference Board's Consumer Confidence Index declined sharply in February, for the third consecutive month to 64.0 (1985=100), down from 78.8 in January, an almost 15-point drop. The index hasn't been that low since October of 1993, when it reached 60.5.

"Lackluster job and financial markets, rising fuel costs, and the increasing threat of war and terrorism appear to have taken a toll on consumers," said Lynn Franco, director of the board's Consumer Research Center.

Not when it comes to buying homes. The Fed believes home buying is a better indicator of actual consumer behavior, than consumer sentiment.

Nationwide, average fourth quarter U.S. home prices appreciated a tiny 0.83 percent from the third quarter, the smallest quarter-to-quarter increase since the second quarter of 1998, but home prices rose 6.89 percent during the fourth quarter of 2002, compared to the same quarter a year ago, the Office of Federal Housing Enterprise Oversight (OFHEO) said March 3.

The increases reveal the strength of the home buying market, even through the recession. More recent numbers show, nationwide, the market isn't running on vapors.

Sales of existing single-family homes rose to a new monthly record in January, increasing 3.0 percent from December and 2.2 percent from a year ago, according to the the National Association of Realtors.

That's largely because, even as home prices have risen, mortgage interest rates keep pushing down record lows and that keeps many home prices affordable.

Last week, Freddie Mac reported that the average 30-year fixed mortgage rate slipped to yet another survey low of 5.79 percent -- more than a full percentage point lower than a year ago. The average 15-year fixed mortgage rate also fell to a survey low of 5.14 percent.

It all reveals the housing market's continued position as the economy's pillar of strength. Home buying supports construction jobs and sales of household goods and consumers, tapping ever increasing equity, help fuel the retail sector.

It's a pillar not likely to crumble.

"By lowering interest rates aggressively, the Federal Reserve undoubtedly has shifted some forms of economic activity from the future to the present..It makes sense to build the houses and cars now, when the cost of doing so is relatively low, rather than waiting. And building them now has kept more people employed and reduced the risk of deflation," said Kohn.

"All in all, from my perspective, with the knowledge and analysis available to me, the policy choices we have made seem consistent with fostering our legislated goals of maximum employment, stable prices, and moderate long-run interest rates, not only in the near term, but most likely over the longer run as well."

Published: March 5, 2003

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.