Economists See No Signs of Housing Bubble

April 12, 2002
The housing outlook remains strong and there are no signs of a housing price bubble on the horizon, according to economists for the National Association

The housing outlook remains strong and there are no signs of a housing price bubble on the horizon, according to economists for the National Association of Home Builders (NAHB) and National Association of Realtors (NAR), speaking April 5 at the National Press Club.

“All the numbers we see point to a good balance of housing supply and demand in most of the U.S.,” said David Seiders, chief economist, NAHB, Washington, D.C. “Fear of a pricing bubble would drive people back into stocks — which Wall Street would surely love — but it is just not the case.”

Seiders also noted that with the inventory of unsold new homes on the market hovering around 4.2 months, housing will not have to make a ‘payback’ for over-building during past recessions. “The economic and financial market environment in our forecasts should provide a solid foundation for the housing market in both 2002 and 2003,” he said. “While some fallback in housing starts seem inevitable in the second quarter of this year, following a huge first quarter, total starts are expected to hover around the 1.6 million annual rate over the balance of this forecast period.”

“You always need to go back to the fundamentals,” added David Lereah, chief economist of the Washington, D.C.-based NAR. “With the economy growing, the job market rebounding and mortgage rates staying relatively low, we see the housing market staying healthy through 2003.”

A record 906,000 new homes and 5.3 million existing homes were sold in 2001. Seiders and Lereah forecast that mortgage rates will rise marginally, moving toward 7.4 percent by the end of 2002 and 7.7 percent for 2003.

According to NAHB, housing and housing-related services account for about 14 percent of the GDP and drive other closely related sectors of the economy. After purchasing a new home, owners within 12 months spend an average of $8,900 to furnish, decorate and improve that home.