- The Washington Times - Friday, October 6, 2000

The economic indicator to watch as we approach 2001 is not interest rates, unemployment figures, job growth or inflation. Nope. It's gas prices.

"Oil prices could bring a plunge in consumer confidence," says David Lereah, chief economist for the National Association of Realtors (NAR). The price of oil is the wild card in the economic poker hand, he notes.

Mr. Lereah made his remarks at the Northern Virginia Association of Realtors' Economic Summit, held at George Mason University last week. More than 100 Realtors from the Washington area showed up to hear projections on how the regional market will fare in 2001.

NAR's chief bean counter was one of several economists who spoke to the group. Stephen S. Fuller, a professor of economics and public policy at the university, gave his forecast for 2001, saying the Federal Reserve's six rate increases since June 1999 "set the stage for a 3.5 percent growth rate for 2001."

"We'll see a deceleration not a reduction in the growth of Washington's economy," he said, noting that the fourth quarter of 1999 and the first quarter of 2000 were the peak quarters for the past 10 years in this region.

Meanwhile, Mr. Lereah contends, "The economy is in remarkable shape, having the greatest economic expansion ever. We've experienced 4 percent [gross domestic product] growth per year for the last four years, exceeding the 1950s and 1960s."

Pulling a quote from Mark Twain "History never repeats itself, but often it rhymes" Mr. Lereah says the Federal Reserve seems to be considering the same action it did in 1994, when it raised interest rates to give the economy a soft landing because it was growing so fast. Nevertheless, he says, "The Fed will not raise interest rates the rest of the year… . we can sit tight for several months."

The economic braking for 2001 has begun already, he says, with "all sectors slowing down and that's good news. The Fed has needed to observe a slowing economy before easing rates."

Back to oil prices, however.

"This is going to be with us into 2001. Fortunately, we're not as vulnerable to devastation like we were in the 1970s," says Mr. Lereah, referring to the time when oil-price increases forced the economy into double-digit inflation.

"We should almost live happily ever after in 2001. Keep your eyes on inflation and the job-growth sectors," he says. Mr. Lereah warns that the stock market is volatile right now, but the probability of the economy heading south is less than 25 percent.

Some good news would be what might happen to interest rates after the first of the year.

"Mortgage rates could dip a little. With rates hovering around 8 percent right now, if they came down to 7.75 percent, that would bring another 50,000 buyers into the housing market. If they come down to 7.5 percent, we could see 100,000 buyers brought into the housing market," Mr. Lereah says.

For the local market, the pressure on housing will not go away, regardless of how the economy is doing.

Mr. Fuller says job growth should continue at its current rate of about 70,000 new positions per year for the local area, and that means a need for more housing.

M. Anthony Carr has written about real estate issues for 11 years. Direct your comments to 8411 Arlington Blvd., Fairfax Va. 22031; or by e-mail to macarr@nvar.com.

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