- The Washington Times - Friday, October 26, 2001

The booming housing market fell victim to the Sept. 11 terrorist attacks, with existing home sales plummeting by 11.7 percent last month the biggest drop in more than six years.
The setback for the economy's star performer occurred in every region and came only a month after home sales hit a record high annual rate of 5.54 million in August. Home prices also declined as the softening market gave buyers increased leverage to bargain down prices after years of engaging in bidding wars.
"Activity came to a virtual halt across the nation" the week of the attacks, said David Lereah, chief economist with the National Association of Realtors, which released the housing figures yesterday.
However, sales have picked up pace some in the weeks since the attacks and now are running at 95 percent of pre-attack levels, he said, ensuring the housing market will still have a good year despite the September setback.
Declining prices and a big drop in interest rates since the attacks are making homes more affordable. And real-estate agents say consumers continue to be attracted to housing as an investment in light of the poor performance of the stock market in the last year and a half at a time when home values were soaring.
But economists say those benefits increasingly are outweighed by other factors that will continue to depress home sales in coming months particularly a sharp rise in joblessness.
A raft of reports out yesterday showed that unemployment has worsened markedly in recent weeks. The Labor Department said first-time claims for state jobless benefits climbed to monthly average of 505,000 the highest level since the last recession while the total number of workers on benefits, at 3.65 million, is the highest in 18 years.
Laid-off workers are finding it quite difficult to find jobs. A measure of help-wanted advertising put out by the Conference Board fell to the lowest level since 1982 last month.
Even those workers who continue to hold jobs are being squeezed, as a steep rise in the cost of health care benefits ate into wage gains in the last quarter, according to a separate report on employment costs released by the Labor Department.
"The full effect of the attacks on housing markets will continue to unravel over the next few months as increasing layoffs and rising uncertainty about the war against terrorism eats into consumer willingness to invest in homes," said Rakesh Shankar, analyst with Economy.com.
Applications for mortgages have declined steadily since the attacks, despite low interest rates, signaling rockier times ahead for home sales.
"Home sales will not be helped much more by low rates. The national economy will be in recession through the end of the year, and concerns regarding the job market will override the benefits of favorable financing conditions," he said. "A recovery in sales will likely have to wait until next year."
While consumers cut back on spending in the wake of the attacks, manufacturers, already hit hard by a yearlong industrial recession, were dealt another blow.
A report from the Commerce Department yesterday showed that orders for big-ticket goods like airplanes, computers and machinery fell by 8.5 percent last month to the lowest level in five years. The slump was not stemmed by a surge in defense orders as factories ramped up production to support the war in Afghanistan.
"The economy ground to a halt in September," said Joel Naroff of Naroff Economic Advisers, but the drop in business at factories was probably exaggerated as companies temporarily pulled back from making decisions just after the attacks.
Ian Morris, economist at HSBC Securities, said the setback for manufacturers may be harbinger of bleak times ahead, however.
"The orders numbers suggest that capital spending is continuing to go down a black hole," he said.

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