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The Housing Market Has Been Propping Up Consumers' Spirits Recently
The housing market has been for two years propping up consumers' spirits while the rest of the economy lies exhausted on the floor, still trying to struggle to its feet. According to the National Association of Realtors, the national median existing-home price ended the year at $ 164,000, up 7.1 percent from 2001. That's the strongest annual increase since 1980.
Although residential real estate activity makes up less than 8% of total U.S. GDP, a housing market like this one can make the difference between positive and negative growth. Most significantly, consumer spending is 66% of GDP, and Omega Replica the purchase of a new home tends to have an "umbrella effect" on the homeowner's spending as he has to stock it with a washer/ dryer, a new big-screen TV, and maybe a swing set for the yard.
The main factor in housing's continued strength is a classic economic example of zero-sum boom: the persistent weakness everywhere else. As the 2003 recovery continues to be more forecast than reality. Falling stock prices raised investor appeal for U. S. Treasury Bonds, which in turn, allowed most interest rates to drift even lower. But there are not many signs that there's a bubble ready to burst. December's new record in housing starts, for example, was nicely matched by the new record in new-home sales--if you build it, they will buy--and even if an economic pickup starts to reduce housing's relative attractiveness, there's no reason why modest economic growth and improved consumer mood can't help sustaining housing's strength. "The momentum gained from low mortgage interest rates will carry strong home sales into 2003, with an improving economy offsetting modestly higher mortgage interest rates as the year progresses," said David Lereah, chief economist at the National Association of Realtors.
Just as housing has taken up much of the economic slack for the past two years, both as a comforting investment for fretting consumers and a driver of consumer spending itself, a big bump elsewhere in the economy in 2003 could be housing's downfall. If stocks roar back this spring, capital inflows could steal from the bond market, pushing up long-term interest rates. Or Alan Greenspan and the Fed could do the same to short-term rates, as a Omega Replica Watches way to hit the brakes on a recovery that is heating up too fast. In other words, if everything possible goes wrong for housing, homeowners should have plenty to compensate them in terms of job security and income hikes.
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