Housing continues to defy the recession

Associated Press

WASHINGTON — Lured by low mortgage rates, Americans pushed sales of previously owned homes to a new record last year, even as the country suffered through a recession.

The National Association of Realtors reported Friday that 5.25 million existing homes were sold in 2001. That surpassed the previous sales record of 5.21 million set in 1999, when the economy was booming.

The record 5.25 million represented a 2.7 percent rise from the 5.11 million homes sold in 2000.

"The housing sector continued to defy the recession," said Karen Dexter, economist with Merrill Lynch.

The country slid into recession in March and was dealt another blow by the Sept. 11 terror attacks. But the housing market, one of the economy’s few bright spots, managed to hold up so well because of low mortgage rates, analysts said.

The average rate for a 30-year fixed-rate mortgage in 2001 was 6.97 percent, the association said, citing figures compiled by mortgage company Freddie Mac. That was the lowest annual average rate since 1998, the association said.

Low mortgage rates are "one of the fundamental factors in the favorable market conditions that we expect to prevail for this year as well," said David Lereah, chief economist for the National Association of Realtors.

Should the economy rebound this year as many economists predict, mortgage rates are also expected to rise.

Still, Lereah predicted 30-year mortgage rates should average 7.30 percent in the second half of the year. "Still pretty good in historic terms," he said.

For Americans who opted to buy a home last year, the benefit of low mortgage rates outweighed other negative factors, 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 existing-home sales last year lifted home prices. For all of 2001, the median sales price was $147,500, a 6.1 percent advance from the median price of $139,000 in 2000.

"After being jilted in their love affair with the stock market, households rediscovered the joys of the residential real estate market," said economist Joel Naroff of Naroff Economic Advisors. "In 2001, they bought houses and watched them appreciate in value."

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 in testimony to Congress Thursday. Consumer spending accounts for two-thirds of all economic activity.

Greenspan told Congress that he saw mounting signs that the economy is recovering from the recession. As part of this assessment of the economy, Greenspan mentioned the strength of the housing market.