DAVID LEREAH – ‘Fairly stable’

The National Association of Realtors predicts 2003 to be a banner year for housing, and Connecticut experts agree that housing remains one of the few bright spots in an otherwise lackluster – but improving – economy.

A firming economy and a continuation of historically low mortgage interest rates mean 2003 is likely to be the second-best year on record for the housing market, according to the National Association of Realtors.

David Lereah, NAR’s chief economist, said home sales are now at something of a sustainable pace. “With most of the disruptions of unusual weather and war behind us, home sales should be fairly stable going forward,” he said. “The current level of activity is on track with our forecast, which would make this the second-best year ever for home sales.”

By many reports, 2002 was a record-setting year for housing activity, mostly due to the low mortgage interest rates.

Lereah predicts that the 30-year fixed mortgage interest rate should move only gradually and rise slowly to 6.3 percent by the end of the year. “This will pinch some buyers at the margins of qualifying for a loan, but will not significantly impact the overall market. We also expect the economy to gain momentum in the second half of the year, brightening the job market and boosting consumer confidence,” Lereah said.

NAR projections show 5.53 million existing-home sales in 2003, down 0.7 percent from the record of 5.57 million sales last year. New-home sales should total 956,000 units this year, which also would be the second-best on record, down 1.8 percent from 974,000 sales in 2002. Housing starts are seen to total 1.72 million units in 2003, up 0.6 percent from last year.

Don Klepper-Smith, chief economist and head of research at Scillia, Dowling and Naterelli Advisors in New Haven, agreed that 2003 should indeed be another a good year for the Connecticut housing market.

“Right now there are clearly a host of factors that will keep housing afloat in 2003,” he said. “First of all, we have affordable interest rates at their lowest level in 41 years. Second, we have the fact that people are looking at housing as an alternative investment to equities. Finally, let’s face it: People are more familiar with their homes, and people have a safety factor there.”

Klepper-Smith explained that homeowners are becoming increasingly well versed in the housing market and understand the issues involved with buying and selling a home.

He added, “The economic fundamentals and demographics are all pointing to another year of good year for growth in the housing market.”

‘Pent-Up Demand’

Earlier this week, the Connecticut Department of Economic and Community Development released its latest “At-A-Glance Economic Indicators” report, which highlights areas of concern throughout the state. Of note is the fact that in almost all categories, the year-to-year change is a negative percentage.

The unemployment rate is up 1.1 percent, the average weekly working hours is down 0.2 percent, new housing permits are down 21.3 percent, retail sales are down 2.8 percent, the number of tourists to selected attractions is down 16.6 percent and the real estate conveyance tax is down 12.9 percent. A host of economic indicators show that 2003 is falling behind 2002’s numbers.

However, a few key numbers indicate growth, including the fact that the average hourly earnings from the manufacturing sector is up to $17.75 – a jump of 3.6 percent over last year’s average per-hour rates. Personal income has jumped up 2.2 percent this year as well, as have the number of business starts, which saw a 3.4 percent increase.

Although a few areas have remained somewhat positive, residential real estate has remained an island of positive market activity during difficult economic times.

The national median existing-home price is expected to rise 5.1 percent this year to $166,400, while the median new-home price should rise 3.2 percent this year to $193,500.

Growth in the nation’s gross domestic product is projected to improve during the second half of the year, reaching an annual growth rate of 3.9 percent in the third quarter. Despite the fact that the GDP will average only 2.3 percent for the year, it should rise to 3.5 percent in 2004. Consumer price inflation is likely to be 2.6 percent for this year.

NAR expects inflation-adjusted disposable personal income to grow 2.6 percent in 2003, while the unemployment rate should peak at 6 percent in the current quarter and then decline to 5.8 percent end of the year. The consumer confidence index is expected to rise to 90 by the fourth quarter.

Locally, Barbara Pearce, president of H. Pearce Company Real Estate in New Haven, agreed that 2003 is going to be a banner year for the housing market.

“I think that the combination of a pent-up demand from people who weren’t able to buy property last year – when the market was crazy and people were getting into bidding wars – along with the fact that interest rates are still low has generated a good housing market,” she said. “There are still people out there who want to buy.”

Pearce voiced her concern that last year’s numbers may have set the bar too high to match or beat.

“It’s been a really good year so far, but what I worry about is that last year was so incredible that it’s hard to match it. That said, we’re pretty much on track with last year.”

However, in an interesting development, sales were down in some areas of the market while the average listing price was up. According to Pearce, sales were down 16 percent in the first quarter, but the average sale price was up 13 percent.

“I think a lot of sellers saw what happened last year and put their houses on the market,” she said. “A lot of people are selling simply because prices are so high. You can’t necessarily guarantee that you can sell a house whenever you want to, so at a time like this you see a lot of people put their houses up for sale.”