BUSINESSWEEK ONLINE : DECEMBER 25, 2000 ISSUE
ECONOMIC TRENDS

Can Home Prices Stay Buoyant?
For now, they're bolstering wealth

Stock prices are down, but home values are still rising. The government reports that home resale prices were up 7.3% last quarter on a year-over-year basis (chart). That's the biggest nominal increase since 1987 and the largest in real terms since 1978, says economist Ian Morris of HSBC Securities in New York.

The key question, he notes, is whether a strong property market can buffer the impact of sagging stock prices on household wealth. Although the real estate boom of the 1980s lasted long after the market crashed in October, 1987, he points out that real estate accounted for 75% of household wealth in 1987, whereas household equity holdings today actually exceed property holdings.

Thus, wealth is now declining, and Morris thinks it won't be long before stock market woes start to undermine property demand and values. Indeed, this is already happening in some markets. Sales and prices of both luxury co-op apartments in Manhattan and high-end homes in Silicon Valley have weakened in recent months.

By GENE KORETZ

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