Contrary to the impression given by the media, the sorry stock market doesn’t constitute the entire national economy. Nor do corporate layoffs, the decline of factory orders, and other gloomy economic indicators. There’s more to the story. Especially when it comes to real estate.

Market Perspective

First, it’s easy to make the mistake of comparing today to yesterday rather than to history. After enjoying – and taking for granted – our longest period of national economic growth ever, we don’t seem to recognize that even our slowing economy is stronger than the economy had been before the boom. The Feb. 9 Kiplinger Letter dramatically points out the changes in economic indicators from mid-1990 to late 2000: Unemployment, poverty, prime lending, mortgage and inflation rates dropped. The federal deficit shrank and the surplus grew. Production went through the roof. Consumer confidence, the Gross Domestic Product, housing starts, and annual car and light-truck sales rose. U.S. Census Bureau figures show that in that same period, the United States population grew by nearly 33 million – the largest 10-year increase in the nation’s history.

All this economic activity and population growth was reflected in the housing market of the late ’90s. According to the National Association of Realtors, existing home sales set annual records for four consecutive years – from 1996 to 1999, passing the 5 million sales milestone in 1999. And existing-home sales in 2000, while slightly lower than in the previous year, still surpassed 5 million.

The Real Estate Sector

This is still the best run real estate’s ever had. The creation of new households in a growing population has led to an even greater demand for housing. And historically low mortgage rates – combined with an unemployment rate that is only slightly higher than its record 4-percent low last year – are still enabling buyers to buy. Low interest rates continue to entice first-time buyers into the market. A few years ago, there was concern that first-time buyers who paid low or no down payments would walk away from their mortgages because they had little invested. But because of the healthy economy, those people now have equity. Property appreciation averaged 8.4 percent nationally in 2000. Those homeowners can be expected to stay and protect their equity.

Then and now, first-time buyers – in turn – enable sellers to purchase larger and more expensive homes. Meanwhile, in spite of a dip in home sales nationwide, sales of existing single-family homes “remain at exceptionally high levels,” according to NAR’s March home sales report. The median price of existing homes in February – $138,800 – was even higher than it had been a year before. NAR’s chief economist, Dr. David Lereah, predicts that existing-home sales, new-home sales, and number of housing starts will continue to slip in 2001.

But that decline is only relative to the recent record-breaking years. He projects that 2001 sales of existing homes will match those of the third-best year in the history of the industry. We’ve often said that real estate drives the nation’s economy. That claim has never been more true than it is now.

Published: April 24, 2001

Use of this article without permission is a violation of federal copyright laws.

Daryl Jesperson (ABR, CRB, CRP) is president of RE/MAX International, Inc., a real estate franchise network of tens of thousands of associates in thousands of offices worldwide. RE/MAX International is headquartered in Greenwood Village, Colo., 303-770-5531.