Economic and Market Watch Report 4th Quarter, 2003
© 2004 Consolidated Multiple Listing Service, Inc.
and NATIONAL ASSOCIATION OF REALTORS® Reproduction, reprinting, or retransmission in any form is prohibited without written permission.
Consolidated Multiple Listing Service, Inc. Economic and Market Watch Report The Consolidated Multiple Listing Service, Inc. provides MLS service to over 5,000 real estate professionals in southwestern (Greater Fairfield County) Connecticut. We are committed to providing property information-based tools, resources and support services to enhance our member’s success.
Index Local Report…………………………..........….....……………………….…….........…..1 Fairfield County……………………............................…....……...........1 Bridgeport.................................................................................1 Stamford....................................................................................2 Norwalk.....................................................................................2 Fairfield.....................................................................................2 Danbury.....................................................................................2 Greenwhich...............................................................................3 Stratford.....................................................................................3 Bethel........................................................................................3 Brookfield.................................................................................3 Darien........................................................................................4 Easton.......................................................................................4 Monroe.....................................................................................4 New Canaan..............................................................................4 New Fairfield.............................................................................4 Newton......................................................................................5 Redding.....................................................................................5 Ridgefield..................................................................................5 Shelton......................................................................................5 Sherman....................................................................................5 Trumbull....................................................................................6 Weston......................................................................................6 Westport....................................................................................6 Wilton........................................................................................6 Litchfield County…….....……………..........................…....…..............7 Washington................................................................................7 Warren.......................................................................................8 Bridgewater...............................................................................8 Kent..........................................................................................8 New Milford..............................................................................8 Roxbury.....................................................................................8 Sharon.......................................................................................9
New Haven County………......………........................…....…….........10 Ansonia...................................................................................10 Beacon Falls............................................................................11 Derby.......................................................................................11 Milford.....................................................................................11 Oxford.....................................................................................11 Seymour...................................................................................11 Southbury................................................................................12 Others………...........................………........................…....…….........13
Trends………………………………………………….....…………..............................15 Chief Economist’s Commentary*……....................………........…….........................17 Local Forecast…………………………………………….....……............................….19 Economic Monitor*…………………………………….....…….........................….......21
*Reprinted from Real Estate Outlook: Market Trends and Insights, ©2004 NATIONAL ASSOCIATION OF REALTORS®.
Used with permission. Reproduction, reprinting, or retransmission of this article in any form (electronic media included) is prohibited without written permission. For subscription information please call 1-800-874-6500
Local Report
FAIRFIELD COUNTY, CT Buyer's Market
1
2
3
4
5
Seller's Market
Labor Market : Fairfield County saw 5,314 layoffs occur during October and November. Despite the decline in employment, the average monthly unemployment rate fell from 4.4% during the third quarter to 4% in the first two months of the fourth quarter. Despite the job losses, the labor market remains relatively strong leaving record low mortgage rates to drive home sales.
Housing Market :
Q3' 03 Average Price
Q4' 03
$586,900
$554,200
# Homes on the Market *
4,299
4,118
# Homes Sold **
2,890
2,008
# New Homes Built ***
403
222
Avg # of Days on Market
76
80
Q1' 04
(Forecast)
* Available as of Dec. 31, 2003. ** May not add to total of zip codes *** During the first two months of 4th quarter.
Bridgeport Data by Zip Codes Price Change (1 Year)
Total # Homes Sold
% Change in # Homes Sold
Zip Code
Average Price
06604
$226,900
14.77%
(Quarter) 26
06605
$264,600
29.45%
20
33.33%
06606
$190,100
14.52%
136
06607
$89,400
91.43%
4
06608
$105,900
62.92%
06610
$147,400
06614
$163,000
(1 Year) 0.00%
Average Days on Market
% of Asking Price (Sold/List Price)
107
96.3%
92
96.2%
20.35%
93
97.1%
33.33%
108
98.1%
8
300.00%
116
97.2%
-18.43%
45
7.14%
73
97.5%
-
1
-
144
103.8%
1
Local Report
FAIRFIELD COUNTY, CT Stamford Data by Zip Codes Price Change (1 Year)
Total # Homes Sold
Zip Code
Average Price
06902
$748,900
20.63%
(Quarter) 76
06903
$962,600
17.12%
58
06905
$554,500
15.18%
06906
$420,400
06907
$505,500
OTHER
$725,000
% Change in # Homes Sold (1 Year) 40.74%
Average Days on Market
% of Asking Price (Sold/List Price)
88
97.0%
-7.94%
75
97.4%
52
-8.77%
73
97.2%
4.32%
10
-33.33%
63
98.5%
2.43%
14
-17.65%
64
98.5%
141.67%
1
0.00%
51
99.5%
Norwalk Data by Zip Codes Price Change (1 Year)
Total # Homes Sold
Zip Code
Average Price
06850
$552,500
15.08%
(Quarter) 38
06851
$441,200
5.35%
77
06853
$1,110,500
-7.87%
17
06854
$411,700
-31.18%
06855
$487,200
-20.87%
% Change in # Homes Sold (1 Year) -11.63%
Average Days on Market
% of Asking Price (Sold/List Price)
73
97.9%
32.76%
64
98.2%
41.67%
84
95.7%
36
9.09%
72
97.1%
18
-5.26%
84
97.6%
Fairfield Data by Zip Codes Price Change (1 Year)
Total # Homes Sold
% Change in # Homes Sold
Average Days on Market
% of Asking Price (Sold/List Price)
Zip Code
Average Price
06430
$698,600
14.43%
(Quarter) 72
86
98.8%
06432
$396,700
-4.80%
56
0.00%
78
96.5%
OTHER
$570,600
-0.59%
45
221.43%
57
98.0%
(1 Year) -35.14%
Danbury Data by Zip Codes Zip Code
Average Price
06810
$333,300
Price Change (1 Year) 25.02%
Total # Homes Sold (Quarter) 73 2
% Change in # Homes Sold (1 Year) 12.31%
Average Days on Market 69
% of Asking Price (Sold/List Price) 97.1%
Local Report
FAIRFIELD COUNTY, CT Danbury Data by Zip Codes Zip Code
Average Price
06811
$362,300
Price Change (1 Year) -0.41%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 73
(1 Year) 12.31%
Average Days on Market 76
% of Asking Price (Sold/List Price) 97.5%
Greenwich Data by Zip Codes Zip Code
Average Price
Price Change (1 Year)
06830
$1,116,500
-60.13%
06831
$1,866,700
152.60%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 4
(1 Year) 300.00%
3
50.00%
Average Days on Market
% of Asking Price (Sold/List Price)
55
97.1%
76
91.2%
Stratford Data by Zip Codes Price Change (1 Year)
Total # Homes Sold
Zip Code
Average Price
06614
$281,300
8.19%
(Quarter) 90
06615
$211,700
-8.28%
54
% Change in # Homes Sold (1 Year) -21.74% 25.58%
Average Days on Market
% of Asking Price (Sold/List Price)
60
97.4%
57
97.2%
Bethel Data by Zip Codes Zip Code
Average Price
06801
$349,500
Price Change (1 Year) 6.75%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 39
(1 Year) -4.88%
Average Days on Market 74
% of Asking Price (Sold/List Price) 97.9%
Brookfield Data by Zip Codes Zip Code
Average Price
06804
$414,200
Price Change (1 Year) -3.79%
Total # Homes Sold (Quarter) 57
3
% Change in # Homes Sold (1 Year) 11.76%
Average Days on Market 80
% of Asking Price (Sold/List Price) 96.5%
Local Report
FAIRFIELD COUNTY, CT Darien Data by Zip Codes Zip Code 06820
Average Price $1,218,600
Price Change (1 Year) 11.50%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 43
(1 Year) 7.50%
Average Days on Market 94
% of Asking Price (Sold/List Price) 96.0%
Easton Data by Zip Codes Zip Code
Average Price
06612
$756,200
Price Change (1 Year) 13.66%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 33
(1 Year) 10.00%
Average Days on Market 96
% of Asking Price (Sold/List Price) 96.5%
Monroe Data by Zip Codes Zip Code
Average Price
06468
$433,500
Price Change (1 Year) 1.38%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 43
(1 Year) -10.42%
Average Days on Market 84
% of Asking Price (Sold/List Price) 98.2%
New Canaan Data by Zip Codes Zip Code 06840
Average Price $1,305,200
Price Change (1 Year) 4.98%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 44
(1 Year) 120.00%
Average Days on Market 114
% of Asking Price (Sold/List Price) 95.6%
New Fairfield Data by Zip Codes Zip Code
Average Price
06812
$358,200
Price Change (1 Year) -6.62%
Total # Homes Sold (Quarter) 57
4
% Change in # Homes Sold (1 Year) -22.97%
Average Days on Market 79
% of Asking Price (Sold/List Price) 95.2%
Local Report
FAIRFIELD COUNTY, CT Newtown Data by Zip Codes Zip Code
Average Price
06470
$526,300
Price Change (1 Year) 11.20%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 70
(1 Year) -9.09%
Average Days on Market 90
% of Asking Price (Sold/List Price) 98.8%
Redding Data by Zip Codes Zip Code
Average Price
06896
$695,500
Price Change (1 Year) 1.47%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 22
(1 Year) -24.14%
Average Days on Market 76
% of Asking Price (Sold/List Price) 90.2%
Ridgefield Data by Zip Codes Zip Code
Average Price
06877
$776,500
Price Change (1 Year) -0.68%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 88
(1 Year) -7.37%
Average Days on Market 77
% of Asking Price (Sold/List Price) 96.3%
Shelton Data by Zip Codes Zip Code
Average Price
06484
$355,200
Price Change (1 Year) 7.28%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 109
(1 Year) -4.39%
Average Days on Market 72
% of Asking Price (Sold/List Price) 99.0%
Sherman Data by Zip Codes Zip Code
Average Price
06784
$594,400
Price Change (1 Year) 42.03%
Total # Homes Sold (Quarter) 13
5
% Change in # Homes Sold (1 Year) -38.10%
Average Days on Market 130
% of Asking Price (Sold/List Price) 97.1%
Local Report
FAIRFIELD COUNTY, CT Trumbull Data by Zip Codes Zip Code
Average Price
06611
$413,200
Price Change (1 Year) 10.72%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 91
(1 Year) -1.09%
Average Days on Market 77
% of Asking Price (Sold/List Price) 97.1%
Weston Data by Zip Codes Zip Code
Average Price
06883
$963,800
Price Change (1 Year) 14.63%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 38
(1 Year) -11.63%
Average Days on Market 116
% of Asking Price (Sold/List Price) 95.9%
Westport Data by Zip Codes Zip Code 06880
Average Price $1,208,500
Price Change (1 Year) 13.89%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 107
(1 Year) 21.59%
Average Days on Market 94
% of Asking Price (Sold/List Price) 94.4%
Wilton Data by Zip Codes Zip Code
Average Price
06897
$839,000
Price Change (1 Year) 5.92%
Total # Homes Sold (Quarter) 47
6
% Change in # Homes Sold (1 Year) -36.49%
Average Days on Market 91
% of Asking Price (Sold/List Price) 96.7%
Local Report
LITCHFIELD COUNTY, CT Buyer's Market
1
2
3
4
5
Seller's Market
Labor Market : Litchfield County saw 735 layoffs occur during October and November. Despite the decline in employment, the average monthly unemployment rate fell from 4.3% during the third quarter to 3.8% in the first two months of the fourth quarter. Despite the job losses, the labor market remains relatively strong leaving record low mortgage rates to drive home sales.
Housing Market :
Q3' 03 Average Price
Q4' 03
$410,700
$429,000
# Homes on the Market *
503
505
# Homes Sold **
199
164
# New Homes Built ***
193
126
Avg # of Days on Market
101
110
Q1' 04
(Forecast)
* Available as of Dec. 31, 2003. ** May not add to total of zip codes *** During the first two months of 4th quarter.
Washington Data by Zip Codes Price Change (1 Year)
Total # Homes Sold
Zip Code
Average Price
06777
$281,300
-44.08%
06793
$854,900
-21.27%
7
06794
$816,400
397.80%
5
(Quarter) 5
7
% Change in # Homes Sold (1 Year) 66.67%
Average Days on Market
% of Asking Price (Sold/List Price)
110
89.4%
40.00%
139
74.7%
400.00%
260
84.2%
Local Report
LITCHFIELD COUNTY, CT Warren Data by Zip Codes Price Change (1 Year)
Zip Code
Average Price
06754
$318,100
-46.19%
06777
$275,000
-19.12%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 8
(1 Year) 0.00%
1
0.00%
Average Days on Market
% of Asking Price (Sold/List Price)
110
86.4%
36
95.2%
Bridgewater Data by Zip Codes Zip Code
Average Price
06752
$544,200
Price Change (1 Year) 2.51%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 3
(1 Year) -62.50%
Average Days on Market 153
% of Asking Price (Sold/List Price) 98.0%
Kent Data by Zip Codes Zip Code
Average Price
06757
$509,400
Price Change (1 Year) -6.70%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 4
(1 Year) -42.86%
Average Days on Market 156
% of Asking Price (Sold/List Price) 92.9%
New Milford Data by Zip Codes Zip Code
Average Price
06776
$357,300
Price Change (1 Year) 15.22%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 114
(1 Year) 42.50%
Average Days on Market 93
% of Asking Price (Sold/List Price) 97.4%
Roxbury Data by Zip Codes Zip Code
Average Price
06783
$768,100
Price Change (1 Year) 55.45%
Total # Homes Sold (Quarter) 12
8
% Change in # Homes Sold (1 Year) 71.43%
Average Days on Market 147
% of Asking Price (Sold/List Price) 90.9%
Local Report
LITCHFIELD COUNTY, CT Sharon Data by Zip Codes Zip Code
Average Price
06069
$488,600
Price Change (1 Year) 34.79%
Total # Homes Sold (Quarter) 5
9
% Change in # Homes Sold (1 Year) 150.00%
Average Days on Market 185
% of Asking Price (Sold/List Price) 85.7%
Local Report
NEW HAVEN COUNTY, CT Buyer's Market
1
2
3
4
5
Seller's Market
Labor Market : New Haven County saw 192 layoffs occur during October and November. Despite the decline in employment, the average monthly unemployment rate fell from 5.6% during the third quarter to 5.1% in the first two months of the fourth quarter. Despite the job losses, the labor market remains relatively strong leaving record low mortgage rates to drive home sales.
Housing Market :
Q3' 03 Average Price
Q4' 03
$322,600
$315,900
# Homes on the Market *
623
593
# Homes Sold **
363
319
# New Homes Built ***
379
251
Avg # of Days on Market
72
76
Q1' 04
(Forecast)
* Available as of Dec. 31, 2003. ** May not add to total of zip codes *** During the first two months of 4th quarter.
Ansonia Data by Zip Codes Zip Code
Average Price
06401
$203,100
Price Change (1 Year) 22.72%
Total # Homes Sold (Quarter) 39
10
% Change in # Homes Sold (1 Year) 8.33%
Average Days on Market 87
% of Asking Price (Sold/List Price) 97.5%
Local Report
NEW HAVEN COUNTY, CT Beacon Falls Data by Zip Codes Zip Code
Average Price
06403
$258,700
Price Change (1 Year) 4.53%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 16
(1 Year) 45.45%
Average Days on Market 86
% of Asking Price (Sold/List Price) 97.5%
Derby Data by Zip Codes Zip Code
Average Price
06418
$232,000
Price Change (1 Year) 16.47%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 25
(1 Year) 19.05%
Average Days on Market 63
% of Asking Price (Sold/List Price) 97.0%
Milford Data by Zip Codes Zip Code
Average Price
06460
$337,800
Price Change (1 Year) 16.52%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 118
(1 Year) 20.41%
Average Days on Market 55
% of Asking Price (Sold/List Price) 96.8%
Oxford Data by Zip Codes Zip Code
Average Price
06478
$373,600
Price Change (1 Year) 15.17%
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 40
(1 Year) -11.11%
Average Days on Market 98
% of Asking Price (Sold/List Price) 99.0%
Seymour Data by Zip Codes Zip Code
Average Price
06483
$283,900
Price Change (1 Year) 14.85%
Total # Homes Sold (Quarter) 48
11
% Change in # Homes Sold (1 Year) -4.00%
Average Days on Market 99
% of Asking Price (Sold/List Price) 98.4%
Local Report
NEW HAVEN COUNTY, CT Southbury Data by Zip Codes Zip Code
Average Price
06488
$438,700
Price Change (1 Year) 3.42%
Total # Homes Sold (Quarter) 33
12
% Change in # Homes Sold (1 Year) 65.00%
Average Days on Market 88
% of Asking Price (Sold/List Price) 97.8%
Local Report
Others
OTHER Data by Zip Codes Zip Code
Average Price
Price Change (1 Year)
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 1
(1 Year)
Average Days on Market
% of Asking Price (Sold/List Price)
06031
$82,500
-
-
614
73.7%
06039
$185,000
-
1
-
83
93.0%
06068
$981,700
-
3
-
109
86.6%
06405
$1,338,100
-
7
-
139
82.1%
06437
$2,000,000
-
1
-
280
88.9%
06468
$407,400
-
2
-
244
99.7%
06473
$538,500
-
1
-
36
94.5%
06477
$449,200
-
11
-
57
95.5%
06478
$537,000
-
1
-
0
100.4%
06482
$397,100
-
33
-
99
98.6%
06483
$314,500
-
1
-
67
95.3%
06490
$1,131,300
-
9
-
114
94.0%
06492
$353,000
-
1
-
132
96.7%
06504
$155,000
-
1
-
20
96.9%
06511
$239,800
-
2
-
155
93.1%
06512
$433,500
-
2
-
81
94.5%
06514
$288,300
-
2
-
89
96.9%
06515
$208,800
-
2
-
59
92.2%
06516
$196,600
-
23
-
44
95.9%
06524
$460,800
-
1
-
120
109.7%
06525
$413,300
-
2
-
82
96.1%
06606
$252,500
-
1
-
40
97.2%
06704
$115,000
-
1
-
28
97.5%
06705
$59,000
-
1
-
95
98.5%
06706
$721,700
-
2
-
59
589.6%
06708
$136,500
-
1
-
56
97.6%
06712
$294,200
-
5
-
68
97.4%
06751
$398,800
-
6
-
155
95.9%
06753
$525,000
-
1
-
109
88.2%
06754
$405,000
-
2
-
70
98.4%
06755
$353,700
-
4
-
105
96.9%
06759
$538,800
-
2
-
217
94.2%
13
Local Report
Others OTHER Data by Zip Codes Price Change (1 Year)
Zip Code
Average Price
06762
$363,300
-
06763
$1,275,000
-
06770
$215,600
06776 06779
Total # Homes Sold
% Change in # Homes Sold
(Quarter) 4
(1 Year)
Average Days on Market
% of Asking Price (Sold/List Price)
-
68
99.6%
1
-
71
85.3%
-
28
-
69
98.0%
$214,300
-
2
-
57
100.2%
$169,900
-
1
-
101
100.0%
06784
$172,500
-
1
-
183
95.9%
06785
$265,000
-
1
-
192
98.2%
06795
$344,000
-
2
-
39
98.9%
06798
$422,500
-
16
-
107
96.5%
06807
$499,000
-
1
-
54
90.9%
06831
$915,000
-
1
-
56
96.4%
06870
$838,300
-
3
-
114
94.6%
06878
$903,700
-
4
-
45
96.9%
06880
$815,000
-
1
-
107
96.0%
12540
$1,750,000
-
1
-
79
97.2%
OTHER
$969,800
-
5
-
109
92.1%
14
Trends
Something New In the Air By Ken Fears, Economist
Just as the national housing market performed remarkably well over the last two years, the local area also faired well. Sales surged in 2002 in response to declining interest rates. Likewise, in the spring and early summer of 2003, the 30-year fixed rate mortgage fell as low as 5.23 percent causing another surge in home sales. New employment drives sales of homes at both the national and local levels. But, sales respond robustly to declines in the mortgage rate, which has had significant implications for the housing market. The number of days that a home sits on the market is assumed to move inversely with the strength of housing demand. Or, more specifically, days on the market should decrease as sales increase. This pattern is evident in the graph of sales and average days on the market for the area covered by Consolidated MLS. While sales rose in the spring and summer of 2002 and 2003, the average days on the market declined as demand ebbed under a relatively low stock of housing.
95.0
1,400 1,300 1,200 1,100
85.0
1,000 900
80.0
Sales
Average Days on the Market
90.0
800 700
75.0
600 500
70.0
400
2 :1 03 20 :11 03 20 :10 03 20 :9 03 20 :8 03 20 :7 03 20 :6 03 20 :5 03 20 :4 03 20 :3 03 20 :2 03 20 :1 03 20 :12 02 20 :11 02 20 :10 02 20 :9 02 20 :8 02 20 :7 02 20 :6 02 20 :5 02 20 :4 02 20 :3 02 20 :2 02 20 Average Days on the Market
sales
Two interesting trends developed in 2003, though. First, while significantly lower mortgage rates in 2003 than in 2002 resulted in higher consecutive home sales, rates averaged 6.54 percent in the second and third quarters of 2002 versus 5.82 percent in 2003, average days on the market rose from 81.2 in 2002 to 81.9 in 2003 The second noteworthy trend is a rise in the average days on the market during the fall of 2003 that occurred while sales were flat or on the rise, a common pattern across the country. The cause of these two trends is likely the same; a change in the characteristics of those buying homes. After two years of a soft labor market and low mortgage rates, the pool of those looking to buy homes has been clearly defined; those with strong incomes, stable employment situations, and a moderate amount of equity. This pool of 15
Trends potential homebuyers is relatively small, so after 3 years of consecutive record homes sales, the size of this pool has been diminished, so that those still looking can afford to spend more time shopping, though ultimately making the choice to purchase. In addition, homebuilders were able to make up some of the shortfall in housing supply that had accrued in the early and middle 1990s by increasing production over the last few years. Housing consumption is likely to revert to a normal path in the coming year. Employment will increase broadening the pool of housing consumers and adding a boost to sales. However, many home construction projects are currently in the pipeline and producers are likely to continue to produce at a strong pace as long as sales and prices remain strong by historical standards. As a result, homes will spend more time on the market in the area covered by Consolidated MLS. While sales will soften from last year’s record level, Realtors® in the area covered by Consolidated MLS will experience strong sales in 2004 and 2005, but it will take longer to make those sales with the return of a more frugal and income constrained consumer population.
16
Chief Economist’s Commentary
HALF AND HALF by David Lereah, Chief Economist
Well, 2004 is here. Happy New Year! The good news even in these first few weeks is the economy is now growing again. The housing sector can look forward to continuing low mortgage rates and favorable demographic trends with boomers and immigrants purchasing homes in record numbers. All economic forecasts, including ours, expect both the economy and housing to experience a happy and healthy new year. But don’t pop the cork on that Champaign bottle just yet. Even though the future portends favorably for housing and the economy, let’s play the role of pessimist and identify what could go wrong just in case - under the worst of scenarios.
The Economy Grows Too Fast It is possible that the U.S. economy could grow too fast, exerting significant upward pressure on inflation and interest rates. GDP growth was 8.1 percent in the third quarter of this past year and there is now mounting evidence of a broad-based pickup of economic activity. Both fiscal and monetary policy, have been in an expansionary stance for some time now. Fiscal policy has been led by the Bush Administration’s multi-billion dollar tax relief package, while monetary policy continues to hold interest rates at 45-year lows. The combination of both fiscal and monetary expansionary forces is the automobile equivalent of pressing heavily on the accelerator while driving on a 55 mile per hour highway. Eventually, you exceed the speed limit, placing the driver and the automobile in danger. Similarly, when GDP exceeds its speed limit (i.e., the non-inflationary growth pace), the economy is in danger of overheating, generating unwanted inflation and higher interest rates.
A Swelling Federal Budget Deficit The federal budget deficit has widened appreciably during the past two years and is now projected to be about $500 billion in 2004. An increase in government spending (led by military expenditures) and a reduction in tax revenue (via Bush’s tax relief package) have been the primary reasons for the deficit’s untimely ascent. Unfortunately, the continued terrorist threat will keep military and defense expenditures up this year, placing upward pressure on future deficits. Even though robust economic activity is expected to add to government revenues in 2004, the nation’s budget deficit could swell if expenditures outweigh revenues. Increasingly higher budget deficits could create a market environment where the government is competing against private corporations for a limited amount of borrowed funds, placing upward pressure on interest rates. This “crowding out effect” was observable during the 1970s and 1980s when interest rates ascended into double-digit territory, placing enormous strains on economic growth. Could history repeat itself during the next several years?
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Chief Economist’s Commentary Heightened Sensitivity to Terrorism Unfortunately, the war against terrorism could last years. The uncertainty of potential terrorist acts in our homeland is now part of the American psyche. This directly impacts consumer confidence with regard to purchasing goods and services, particularly expensive durable goods items, such as automobiles and homes. Increased terrorist activity, perceived or real, could send consumer confidence plummeting, inhibiting both economic and housing activity.
Increasing Dependency on Foreign Capital The U. S. is becoming increasingly dependent on foreign capital to fuel its economic engine. The nation’s trade deficit most probably deteriorated in the fourth quarter of last year (data not available yet) and is now almost $42 billion. Despite the recent fall-off in the dollar, import growth continues to outpace export growth, exerting upward pressure on the deficit. Similarly, our nation’s budget deficit continues to swell as well. As stated above, the budget deficit is expected to register an alarming $500 billion in 2004. The so-called “twin towers” of trade and budget deficits promise to cast a dark shadow on the bright outlook for the economy and housing markets in 2004. The large twin deficits place the U.S. in a vulnerable position with regard to our dependence on foreign capital. If the deficits continue to swell, U.S. interest rates may rise in order to attract the necessary amount of foreign capital to fund these deficits.
Fundamentals Remain Positive On balance, it is very clear that the U.S. economy and housing markets are on the right track for 2004. The fundamentals remain excellent for the economy to expand briskly and for the housing sector to maintain a high level of activity. We may need to pay attention to some signs that could endanger the good times ahead: a higher than expected growth pace for the economy, further swelling of the federal budget and trade deficits, and increased terrorist activities in the homeland. Fortunately, these threats to our future prosperity are unlikely to occur in 2004 — the glass half full, not half empty. The pessimist may be right in the long run, but the optimist has a better time during the trip.
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Forecast The Forecast By Lawrence Yun, Senior Research Forecaster What's ahead for the housing and the economy in the new year? The U.S. economy looks extremely bright. Close to two million new jobs will be created in 2004. But home sales will level off a bit from their record figures of 2003. Nonetheless, real estate business revenue should register gains since home price appreciation will more than make up for any decline in home sales in most markets. The Consolidated
bottom line is that the mortgage rates will be heading higher by spring.
Will higher interest rates then send the housing sector tumbling? No. The 30-year fixed mortgage rate will rise from current 5.9% to 6.7% by year's end. Though a measurable rise, it will also go down in history as one of the lowest rates. There MLS region will see a modest sales decline of 3% in 2004. have been only four times in the past 30 years when rates With the home prices rising very fast, with average price averaged below 7% for the year as a whole. Under our well over half million dollars, housing affordability will be- assumptions on mortgage rates and job growth forecasts, home sales will decline by 4%. Home prices will continue come an issue for many potential homebuyers. their upward march, but at a slower pace than in 2003. What will propel the economy? Business spending will experience the biggest increase in percentage terms. There is a lot of pent-up spending to do here following the sizable investment slump in new plants and equipment over the past few years. Export orders have been picking up as well and will continue to do so in 2004.
How high do the interest rates have to rise to tip over the housing sector? Home sales will fall by 8% if mortgage rates quickly rise to 7% and stay there for the remainder of the year. Sales will fall by 14% if the rates rise to 8%. Both scenarios are highly unlikely though. Another scenario to keep in mind is Consumer spending makes up the bulk of economic activity what happens if interest rates do not rise and stay similar to and consumers will continue their robust spending habits. the levels of 2003. Home sales will rise by 2% due to job The stock market is making a significant comeback. The creation and rising consumer confidence. nation's homeowners -- 68% of U.S. households -- saw their net wealth increase due to healthy home price gains. Any bold predictions? Furthermore, larger-than-normal tax refunds are on tap. For the Anglophiles out there, home prices will flatten out, Most importantly, job growth and its accompanying income possibly even decline, in the U.K by the end of the year. generation will be the biggest factor in boosting aggregate Britons have seen their home price spiked up by 16% in spending. The economy will advance by a solid 4.7% in 2003. The dramatic turnaround of events will then precipitate a huge discussion on the imminent price burst here in 2004 to be followed by another 4.0% in 2005. the U.S. But U.S. home prices are in no danger of falling. Given the strong pick up in the economy, will it mean The U.S. home price will grow close to 5%, triple the rate of general consumer price inflation. a much higher inflation rate? No. U.S. factories are still underutilized and the labor market is just coming off a cyclical peak in unemployment. The spectacular growth in labor productivity also keeps inflation down. In addition, intense international competition has kept domestic pricing power at bay. The inflation rate will actually decelerate to 1.6% in 2004 from 2.6% in 2003. When will the Federal Reserve start hiking interest rates? August 2004. The Fed's principle duty is to provide price stability - neither inflation nor deflation. Currently, inflation is essentially nonexistent. But remember that inflation tends to rear its ugly head only after some lag from solid pick up in economic activity. The Fed will foresee some upticks in inflation from 2005. To be proactive, the Fed will raise rates in late summer of this year. The market, in anticipation of the Fed move, will make its move several months prior. The 19
The primary difference between the U.S. and the U.K markets is the prevalence of adjustable rate mortgages. The U.K market is dominated by month-to-month adjustable mortgage rates while the U.S. market is literally fixed with 30-year mortgages. Even the adjustable rate mortgages in the U.S. are not the month-to-month kind but those that are initially fixed for three to five years before becoming adjustables. The British economy has been one of the better performing over the recent global economic cycle. Hence, the Bank of England will hike rates much soon than the U.S. Fed. Some marginal homebuyers in the U.K. of the recent years will have difficulty servicing higher interest mortgage payments and will be forced to sell. At the same time, fewer buyers will hit the market. A ripe recipe for a possible price decline.
Forecast
U.S. Economic Outlook: January 2004 2003
2004
2005
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2001
U.S. Economy Annual Growth Rate Real GDP Nonfarm Payroll Employment Consumer Prices Real Disposable Income Consumer Confidence
1.4 -0.3 3.9 1.6 68
3.3 -0.7 0.6 2.6 83
8.2 -0.3 2.3 7.4 79
4.3 0.8 0.7 1.1 88
4.4 1.8 1.7 9.8 87
4.4 2.4 1.9 3.1 90
4.2 2.4 1.7 0.5 94
4.2 2.9 2.1 4.7 98
3.7 2.3 2.7 3.1 100
4.0 1.9 2.5 2.2 102
2.4 -1.1 1.6 4.2 97
Percent Unemployment
5.8
6.2
6.1
5.9
5.8
5.8
5.6
5.4
5.2
5.2
Interest Rates, Percent Fed Funds Rate 3-Month T-Bill Rate Prime Rate Discount Rate Corporate Aaa Bond Yield 30-Year Government Bond
1.3 1.2 4.3 0.8 6.0 5.0
1.2 1.0 4.2 0.7 5.3 4.7
1.0 0.9 4.0 0.5 5.7 5.2
1.0 0.9 4.0 0.5 5.6 5.3
1.0 0.9 4.0 0.5 5.7 5.4
1.0 1.0 4.0 0.5 6.0 5.7
1.3 1.2 4.3 0.8 6.1 5.8
1.5 1.4 4.5 1.0 6.2 5.8
2.0 1.9 5.0 1.5 6.2 5.9
Mortgage Rates, percent 30-Year Fixed Rate 1-Year Adjustable
5.8 3.9
5.5 3.7
6.0 3.7
5.9 3.7
6.1 3.8
6.5 3.9
6.6 4.1
6.7 4.3
6,166 1,089 1,995 1,640 355 449
5,868 1,036 1,826 1,480 346 444
5,788 1,030 1,724 1,388 336 428
5,861 1,000 1,641 1,301 340 412
5,893 970 1,637 1,292 345 401
Housing Indicators Thousands Existing Single-Family Sales New Single-Family Sales Housing Starts Single-Family Units Multifamily Units Residential Construction*
5,867 984 1,737 1,405 332 406
5,827 1,095 1,739 1,415 324 412
6,423 1,157 1,884 1,523 361 434
2002
2003
2004
3.1 -0.2 2.3 2.6 79
4.7 1.4 1.6 4.6 92
4.0 2.3 2.4 2.8 104
5.8
6.0
5.6
5.1
2.3 2.2 5.3 1.8 6.4 6.0
1.7 1.6 4.7 1.2 6.5 5.4
1.1 1.0 4.1 0.6 5.7 5.1
1.2 1.1 4.2 0.7 6.0 5.7
2.5 2.3 5.5 2.0 6.4 6.0
6.8 4.6
6.9 4.8
6.5 4.6
5.8 3.8
6.5 4.0
7.0 5.0
5,813 957 1,617 1,265 352 398
5,700 957 1,606 1,247 359 395
5,566 973 1,705 1,359 343 425
6,071 1,081 1,839 1,496 343 425
5,852 1,009 1,707 1,365 342 421
5,839 961 1,606 1,248 359 395
Percent Change -- Year Ago Existing Single-Family Sales New Single-Family Sales Housing Starts Single-Family Units Multifamily Units Residential Construction
2.4 7.7 1.2 3.2 -6.7 5.7
6.0 15.0 3.3 5.5 -5.3 6.7
18.7 14.1 10.7 13.5 0.3 12.0
7.3 6.1 14.5 16.3 6.7 13.3
0.0 5.2 5.1 5.3 4.2 9.5
-0.7 -5.9 -0.8 -1.9 3.9 3.9
-8.8 -13.5 -12.9 -14.6 -5.7 -5.1
-4.4 -10.9 -18.0 -21.2 -2.9 -10.5
-0.9 -7.6 -11.4 -14.5 1.7 -10.5
-1.5 -7.0 -6.9 -10.2 6.8 -7.7
5.1 7.2 6.4 6.8 5.3 4.1
9.1 11.1 7.8 10.1 -0.1 0.0
-3.6 -6.7 -7.2 -8.7 -0.3 -0.9
-0.2 -4.7 -5.9 -8.6 5.0 -6.1
Median Home Prices Thousands of Dollars Existing Home Prices New Home Prices
161.2 184.6
168.4 191.0
176.9 190.5
172.6 200.7
170.8 195.8
176.5 201.0
183.6 200.1
180.6 209.9
179.4 207.9
185.0 212.7
158.1 187.6
170.8 194.5
178.7 204.5
186.5 212.0
Percent Change -- Year Ago Existing Home Prices New Home Prices
6.8 -1.4
7.1 2.6
10.1 7.4
7.2 6.0
5.9 6.1
4.8 5.2
3.8 5.1
4.7 4.6
5.0 6.2
4.8 5.8
7.0 7.1
8.0 3.7
4.6 5.1
4.4 3.7
Local Region Jobs (in thousands) Home Sales Home Prices (in thousand $)
184.1 1898 470.9
188.3 2816 512.7
181.6 3710 545.4
182.7 2700 511.0
183.5 1870 506.2
188.1 2827 547.6
182.5 3495 581.4
184.1 2646 541.1
185.6 1896 534.6
190.6 2881 578.2
186.2 11307 472.8
184.2 11124 516.0
184.6 10838 549.8
188.1 11060 578.4
Percent Change -- Year Ago Jobs Home Sales Home Prices
-0.7% -10.9% 8.5%
-0.7% -15.0% 8.6%
-1.1% 12.9% 9.0%
-0.7% 4.8% 8.6%
-0.3% -1.5% 7.5%
-0.1% 0.4% 6.8%
0.5% -5.8% 6.6%
0.8% -2.0% 5.9%
1.1% 1.4% 5.6%
1.3% 1.9% 5.6%
-2.7% 9.2% 11.1%
-1.1% -1.6% 9.1%
0.2% -2.6% 6.5%
1.9% 2.1% 5.2%
National quarterly figures are seasonally adjusted annual rates. Some data for the third quarter 2003 are actuals while others are estimates Source: Forecast produced using Macroeconomic Advisers quarterly model of the U.S. economy. Assumptions and simulations by Dr. David Lereah and Dr. Lawrence Yun.
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Economic Monitor This table reflects data available through January 9, 2004.
Recent Statistics
Monthly Indicator
Mortgage Rates The 30-year fixed mortgage rate slipped to 5.88% in Oct December. Mortgage rates finished the year with the lowest average on record. The one-year adjustable rate inched up in November to 3.76%.
Nov Dec
Existing Home Sales gradually slowed in November, but remained Oct above the 6 million mark, which is indicative of a very robust housing market. Home resales declined 4.6% to a level of 60.6 million-units on a seasonally annualized basis.
Nov Dec
New Home Sales slipped 2.4% in November to a seasonally adjusted Sep
Likely Direction Over the Next Six Months
5.95 5.93 5.88 6,680 6,350 6,060
Forecast Money flowing into the stock market hurts bond rates Off a bit from torrid pace
annual rate of 1.082 million units. While this is the third consecutive decline, the overall level is still very strong, running about 6% higher than one year ago.
Oct Nov
1,137 1,109 1,082
Like existing home sales, pace will slow a bit.
Housing Starts
Sep Oct Nov
1,931 1,980 2,070
Builders being careful not to overbuild
New home construction surged to its highest level since 1984, rising 4.5% in November to 2.07 million seasonally adjusted annualized units. Housing permits did weaken, however, suggesting that activity might moderate down the road.
Employment Growth Payroll employment increased only by 1,000 Oct in December, much less than anticipated. The weakness was due primarily to declines in manufacturing and retail trade and slow job creation in other service industries. The unemployment rate was 5.7 percent.
Nov Dec
100 43 1
Even the manufacturing firms will hire
Purchase Applications
The purchase applications index fell minimally in December to a level of 409.7, but a reading above 400 is still indicative of a healthy activity in the mortgage market. Still-low mortgage rates should continue to fuel mortgage loan applications.
Oct Nov Dec
390.9 425.7 409.7
Higher rates rein in buyers
Housing Affordability The housing affordability index inched up in November to 139.4. This shows that the typical family earning the median income still has more than enough to qualify for a mortgage loan.
Sep Oct Nov
136.7 138.7 139.4
Inflation The consumer price index fell 0.2% in November. Core inflation (excluding food and energy) fell 0.1%. The report shows that inflation does not appear to be an imminent threat to the economy.
Oct Nov Dec
+0.3% 0.0% -0.2%
Home prices continue to rise faster than incomes Intense foreign competition keeps the lid on prices
Notes: All rates are seasonally adjusted. Existing home sales, new home sales and housing starts are shown in thousands. Employment growth is shown as month-to-month change in thousands. Inflation is shown as month-to-month percent change in the Consumer Price Index. Sources: NAR, Bureau of the Census, Bureau of Labor Statistics, Mortgage Bankers Association, and Freddie Mac.
In 2003, home price appreciation experienced one of its best years ever. Through November, home prices averaged a monthly growth rate of 7.7%. If prices finish the year at that rate, it would be the highest home appreciation rate since 1980. The exceptional appreciation rate is due primarily to lean inventories, historically low mortgage rates, and an insatiable demand for homes. The month’s supply of homes on th emarket averaged 4.7 January through November, well below the 5-6 month’s supply level which is indicative of a balanced market. Mortgage rates in 2003 were in record-low territory all year long. This translated into what will soon be a record shattering level of home sales for 2003. The culmination of these factors placed enormous upward pressure on home prices, which created a golden year for housing as an investment.
Real Estate Outlook
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