Updated: 3/26/01 10:16 AM EST Released: 3/26/2001 Coverage: Feb. 2001 Actual: 5.18 Million Consensus*: 5.00 Million Next Release: 4/25/2001 Analysis by: Mark Zandi *Source: Thomson IFR   Register to receive automatic notification of this release.

First Take

The housing market remains strong. Existing home sales were a robust 5.18 million units in February. This is consistent with the sales pace experienced in the record sales years of 1999 and 2000. Lower mortgage rates continue to support housing demand, offsetting the negative impact of a weaker job and stock markets. As long as housing demand remains resilient, the broader economy will continue to avoid a full-blown recession.

Existing Home Sales , (SAAR) Feb-01 Jan-01 Dec-00 Nov-00 Oct-00 Sep-00 Aug-00 Jul-00 Units, (Mil.) 5.18 5.20 4.94 5.30 5.07 5.16 5.24 4.82 Monthly % Chg. -0.4 5.3 -6.8 4.5 -1.7 -1.5 8.7 -6.9

This data provided by the National Association of Realtors.

Summary

Existing home sales continue to defy expectations that they will weaken. Sales in February were a robust 5.18 million annualized units. Sales remained strong in all four broad regions of the country. House price gains are moderating somewhat, but are rising at a healthy close to 4% year-over-year pace. Inventories of homes for sale remain low, suggesting the pricing should remain firm at least through the spring.

Analysis There is no indication that the housing market is set to founder despite the deepening problems evident in the broader economy. Both existing and new home sales remain strong. Existing home sales are running at over a 5 million annual sales rate and new home sales which rose a record near 1 million units last December are currently hovering at over a healthy 900,000 units pace. According to the Mortgage Bankers Association, applications for mortgage loans to purchase a home have softened a bit in recent weeks through mid-March, but remain very strong. Applications lead home sales by one to three months, thus indicating that home sales should remain solid at least through the spring. The healthy sales rate has kept inventories of homes for sale at a near record low of four months. For contrast, inventories prior to the last recession in 1990-1991 were approximately eight months. Robust demand and low inventories have continued to support solid house prices, which are currently rising at close to a 4% pace. Strong sales, low inventories and vacancies, and solid house prices are all supporting homebuilding. While total annual housing starts are down from their late summer 1999 peak of close to 1.7 million units, they are currently near a respectable over 1.6 million units. The principal support to housing demand is low mortgage rates. Fixed mortgage rates are currently hovering near a 30-year low of 7%. A year ago, rates peaked at over 8.5%. Mortgage rates have fallen, largely due to a significant decline in long-term Treasury yields. Heightened recession fears and a weaker stock market have pushed 10-year Treasury yields down to under 5%. Rates on adjustable mortgages have also come down substantially since the start of the year with the easing in monetary policy. As long as housing demand remains resilient, the broader economy will avoid an economic downturn.