Friday, April 01, 2005

The Housing Boom Is Far From Over

Housing is going strong at least through the end of the decade, predicts David Lereah, chief economist for the National Association of Realtors, and his infectious enthusiasm is as strong as his theory.

He believes it so strongly he wrote a book about it.

While promoting his new book Are You Missing The Real Estate Boom?: Why Home Values And Other Real Estate Investments Will Climb Through The End Of The Decade - And How To Profit From Them, Doubleday, on a recent nationwide tour, Lereah is aware of the real estate bubble theorists who predict that what comes up must eventually come down.

Real estate has been on a bull run the last five years, particularly when interest rates hit a 40-year low several times. Relaxed credit terms allowed more people to buy. Baby boomers reached their economic success point, enabling them to drive second home purchases to new levels. These are a few reasons real estate homeownership has reached the 68 percentile, an all-time record.

But nothing lasts. New home sales tumbled 9.2 percent in a colder-than-normal January, says the National Association of Home Builders. U.S. home prices increased 11 percent last year, says the Office of Federal Housing Enterprise Oversight, but the last quarter slowed to an annualized rate of 6.77 percent, showing a slowdown. A Gallup poll for Experian recently found that 21 percent of consumers reported reducing their spending in response to rising interest rates. And so on.....

Lereah is unshaken, and says it is natural for real estate to take a rest stop, but that doesn't mean it won't continue to climb, just not at perhaps the same frantic rate.
"I believe that in years to come," he says, "historians will see the beginning of the 21st century as the 'golden age' of real estate."

Like other experts, Lereah wants to start any discussion of real estate booms and busts by redefining what a boom is. "It's a healthy real estate expansion," he says. "You can have a downturn and still be in a boom period. A three percent drop in home sales is still the second best year on record."

So what makes Lereah so confident the boom is far from over? Six reasons:

There's a lean supply of homes -- a 4.3-month supply when the benchmark is 6.0 months.
Mortgage rates are still low and will continue to be low for the next several years. Even as they rise, they won't rise high enough or fast enough, to kill a real estate expansion.

Demographics are creating demand. Retirees are staying in their homes, which creates demand.

Boomers are buying second homes, bigger homes, or scaling down to more luxurious smaller homes. Immigration is at record levels creating demand from resident aliens who have now earned enough to put down on a home. Echo boomers, the next largest population wave are entering the homebuying market as first-time home buyers. "All the stars are in alignment for population growth and demand for housing," says Lereah.

Technology has lowered the cost of homebuying, including improving the approval process through automated underwriting, the range of loan products offered, and the search process for homes via the Internet.

Minority assistance programs started in 1992 by HUD and Fannie Mae, etc., have improved the moral-suasion of purchasing a home instead of renting.

The uncertainty created by the terrorist attacks on Sept.11, 2001, has changed the flow of funds from stocks into real estate, creating unprecedented property liquidity. "A home is no longer a place to live," notes Lereah, "but a place to invest."
Written by Blanche Evans

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