For all the Sturm und Drang in the broader economy, a surprising number of Americans are still rushing to get their piece of the American Dream. And even though housing sales have historically wilted at the first whiff of an economic slowdown, this time around homes purchases continue to soar. Low mortgage rates, poor investment alternatives, tight supply, and changing demographics are all conspiring to fuel the homesteading trend. The upshot? "Without the resilient housing market, the economy would already be in recession," says Mark Zandi, chief economist at Economy.com, a Pennsylvania-based economic consulting firm.
Call it housing's golden age. This year economists expect new home sales to break 900,000, topping the near-record 877,000 new homes sold in 2000. What's more, sales of existing homes are running strong, too. Despite expectations of a slight slowdown in the second half, David Lereah, chief economist for the National Association of Realtors, forecasts 5.16 million resales this year, just below the record 5.2 million sales in 1999. As a result, roughly three-fourths of the economy's meager 0.8% growth in the first half of 2001 came from housing and related sectors such as furnishings, according to Economy.com.RECORD BACKLOGS. Homebuilders from Miami's Lennar Corp. to Los Angeles-based KB Home have booked record profits during the first six months of 2001 and have built record backlogs for the second half. In the Washington suburbs of Crofton, Md., buyers who put a deposit down last January on a Richards Group project won't be able to move in until mid-2002. "Even if sales were to drop 10% to 20%, it would take a long while to run down [our] backlog," says Robert I. Toll, chief executive of the Huntingdon (Pa.)-based builder Toll Brothers Inc.
Why such strength? With stocks tumbling, buyers say they now view housing as a better investment. Cheap mortgage rates are helping too, with the six rate cuts by the Federal Reserve pushing the 30-year mortgage rate down to 7.11%. And while some economists believe mortgage rates could creep up in coming months, many expect rates to remain below 2000's average rate of 8.05%. "As long as the Fed stays accommodative, consumer confidence should remain high," says Lereah.
Tight zoning restrictions have also helped stretch out the current boom. Mark Vitner, an economist at First Union Corp., notes that demand in the Sun Belt, where roughly half of all new construction is taking place, has been stifled by moratoriums on new water and sewer hookups. So, while employment in places like Atlanta is expected to grow at only half the rate of 2000, homebuilders still expect to build about as many homes as they did last year.
Even so, many homebuilders around the country acknowledge the good times can't last forever. Already, some sectors--namely, high-end enclaves in Denver and Manhattan and vacation hot spots like the New Jersey Shore--are showing signs of weakness. And if unemployment spikes, builders acknowledge that their current hefty backlogs could evaporate. Nevertheless, for the time being, the New Economy seems to have morphed into the housing economy. By Dean Foust in Atlanta, with Stephanie Anderson Forest in Dallas, Nicole St. Pierre in Washington, and bureau reports