That question remains open, but the housing boom saved the economy in 2002. Fed up with the stock market, Americans went on a real-estate orgy. We traded up, tore down and added on. Builders started almost 1.7 million new homes, up 5 percent from 2001. Existing home sales were a record 5.5 million. Prices rose almost everywhere: up 22 percent in San Diego, 19 percent in New York and 13 percent in Ft. Lauderdale. The national increase was 7 percent.
And, boy, that lifted spirits. Since year-end 1999, higher home values have added $3.1 trillion to households’ wealth, estimates the Federal Reserve. But it wasn’t only disillusion with stocks that fed the real-estate frenzy. It was lower interest rates, too. At year-end 2001, 30-year conventional mortgages were 7 percent; now, they’re about 6 percent–the lowest levels since the 1960s. Beyond construction and associated purchases (appliances, furniture), housing’s stimulus also came from a floodtide of mortgage refinancings.
In the past two years, perhaps 40 percent of home mortgages have been refinanced, estimates Mark Zandi of Economy.com. By taking out new loans at lower rates, millions of Americans saved on monthly payments–or borrowed more against higher home values with the same monthly payments. In 2002, Zandi figures that $269 billion was borrowed through such “cash-out” refinancings and home-equity loans. Surveys suggest that almost 70 percent of that was spent on home remodeling or other purchases: a big shove for the economy.
Could there be a cloud in this silver lining? Maybe. Housing’s been so strong that it could weaken slightly in 2003. Construction and mortgage refinancing might slow. Zandi doubts there’s an overall real-estate bubble, but he thinks prices might fade in some overheated markets. Indeed, I’ve noticed fewer for-sale signs in the neighborhood. Time to interview the wife again.
