Existing-home sales shatter record for 2002
Published: Tuesday, January 28, 2003 at 6:01 a.m.
Last Modified: Monday, January 27, 2003 at 11:40 p.m.
WASHINGTON - Home buyers took advantage of some of the lowest mortgage rates in decades and catapulted sales of previously owned homes in 2002 to the highest level on record.
The housing market thrived even as the American economy, knocked back by the 2001 recession, struggled all last year to regain a solid footing and suffered through uneven growth. The lure of low mortgage rates proved irresistible to many people, who opted to make big-ticket financial commitments despite the muddled economic environment.
Previously owned homes sold at an annual rate of 5.56 million in 2002, shattering the record of 5.30 million reached in 2001, the National Association of Realtors reported Monday.
''Housing remains one of the sole pillars of strength for the U.S. economy,'' said Lynn Reaser, chief economist at Bank of America Capital Management. ''Consumers remain willing to undertake longer-term commitments in terms of purchases of both autos and homes,'' she said. While low mortgage rates have stoked home sales, free-financing and other incentives have buoyed car sales.
Sales of previously owned homes rose to a seasonally adjusted annual rate of 5.86 million last month, representing a 5.2 percent increase from November's level. The annualized rate reflects how many homes would sell if the same number of sales in a month continued for all 12 months.
''Exceptionally low mortgage interest rates are the primary factor in record levels of home sales,'' said David Lereah, chief economist at the National Association of Realtors.
The average interest rate on a 30-year fixed-rate mortgage was 6.05 percent in December, a record monthly low, the association said. For 2002, the average rate on a 30-year mortgage was 6.95 percent, the lowest annual average since Freddie Mac, the mortgage giant, began tracking them in 1971.
Low mortgage rates encouraged many people to buy homes last year or refinance those they already owned. The extra monthly cash that homeowners save by refinancing mortgages at lower rates has helped consumer spending remain the primary force keeping the economy going.
Another factor motivating home buyers is solid appreciation of housing values. That offers people attractive investment, especially given the turbulent stock market, economists said.
The national median home price last year was $158,300, up 7.1 percent from 2001. The median price is where half sell for more and half sell for less. The 7.1 percent increase was the largest annual increase since 1980, when the median sales price shot up by 11.7 percent.
By region, existing-home sales in the West rose by 7.5 percent in 2002 from the previous year to 1.49 million. In the Midwest, sales rose by 4.9 percent to 1.22 million, and in the South sales went up 4.1 percent to 2.2 million. In the Northeast, sales increased to 653,000, a 2.4 percent rise from 2001.
Economists believe the Federal Reserve will hold short-term interest rates at a 41-year low of 1.25 percent at the close of a two-day meeting Wednesday. By keeping rates low, policy-makers hope the Fed will entice consumers to continue to spend and motivate businesses to step up investment, forces that would help the sputtering recovery.
President Bush has offered a 10-year, $674 billion package aimed to help boost economic growth. The centerpiece of the plan is a provision that would wipe out the tax that shareholders pay on stock dividends.
Senate Democratic leader Tom Daschle of South Dakota predicted the dividend part of the plan would never see the light of day. ''I would say that the stock dividend approach is dead on arrival,'' Daschle declared Sunday in an appearance on CBS' ''Face the Nation.''
White House spokesman Ari Fleischer disagreed.
''Events will soon show that the president's proposal to revive the economy and to provide tax relief is alive and kicking,'' Fleischer shot back Monday.
On the housing front, economists expect mortgage rates this year to edge up a bit but to remain fairly stable, thus continuing to support the housing market. Lereah predicts existing-home sales in 2003 could turn out to be the second-best year on record.
Low mortgage rates encouraged many people to buy homes last year or refinance those they already own.
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