Sales of new homes climbed to an all-time high last year even as the country was mired in a recession. Low mortgage rates helped to motivate Americans to make such a big purchase.
The Commerce Department reported yesterday that a record 900,000 new single-family homes were sold in 2001, a testimony to the resiliency of the housing market, one of the economy’s few bright spots.
Last year’s sales performance surpassed the record of 886,000 set in 1998 and represented a 2.6 percent increase from sales registered in 2000.
“The housing market was the shining star in a very dark constellation,” said Joel Naroff of Naroff Economic Advisors. “While manufacturing and technology and investment collapsed, households still showed their confidence in the future by purchasing homes at a record pace.”
For existing homes, sales reached an all-time high of 5.25 million in 2001, the National Association of Realtors said last week.
Analysts marveled at the strength of the housing sector given last year’s economic turbulence. The country slid into a recession in March and just as the economy was beginning to show some signs of a rebound, it was dealt a severe blow by the September 11 terror attacks.
A key reason the housing market managed to hold up so well was because of low mortgage rates, analysts said. The average rate for a 30-year fixed-rate mortgage in 2001 was 6.97 percent, the lowest annual average rate since 1998.
New-home sales also were bolstered by incentives from home builders, such as including some amenities at no charge and paying for buyers’ closing costs, said David Seiders, chief economist for the National Association of Home Builders.
The low mortgage rates and incentives outweighed other negative factors for home buyers, including rising unemployment, which hit a six-year high of 5.8 percent in December, and a volatile stock market, analysts said.
The rise in overall sales pushed up housing prices. For all of 2001, the median sales price, meaning half sold for more and half for less, increased to $174,100, a 3 percent advance from 2000.
Appreciation in housing values and the resulting cash from a wave of home-mortgage refinancing has helped support consumer spending during the slowdown, Federal Reserve Chairman Alan Greenspan said last week. Consumer spending accounts for two-thirds of all economic activity.
To revive the economy, the Federal Reserve cut short-term interest rates 11 times last year, which had the effect of pushing down the prime interest rate a benchmark for millions of consumer and business loans to its lowest level since November 1965.
Given that Mr. Greenspan told Congress last week that he sees signs of a recovery, many economists expect that Fed policy-makers will hold rates steady at their two-day meeting, which ends tomorrow.
Should the economy rebound this year as many economists predict, mortgage rates are also expected to rise, averaging around 7.3 percent in the second half of the year. That’s a still low level by historical standards, economists said.
But new-home sales will probably be pretty this year, Mr. Seiders said.
“Because sales were so good during the slowdown, we’re not anticipating a burst of pent-up demand for homes as the economy turns,” he said.