The association's chief economist, Dr. David Lereah, is quoted as saying that in the short run for housing, the positive impact of lower interest rates wins the battle--but the inhibiting effects of a slowing economy may win the war. The real question is whether the Fed will be successful in orchestrating a soft landing, or will it come in for a hard landing. The wild card here is the affect increased energy costs, which releases less money for consumer spending.

Yet, housing remains the strongest sector of the economy, driven by a combination of demographic demand, low unemployment and affordable interest rates, Lereah said. "About 85 million people are entering the market as first time home buyers, and are benefiting from the drop in interest rates," he said. The 30-year fixed mortgage interest rates are expected to average 6.9% this year.

"You have the Fed orchestrating rate reductions," says Sigrid Fennemore, NAR senior economist. "We are anticipating further reductions this year. So what does that translate into? That would be a boost to home sales because it makes housing more affordable. If you boost the housing sector, that affects other sectors. It's a snowball effect."

Lereah anticipates existing-home sales should rise 2.5% this year to a total of 5.14 million units, the second highest on record. New-home sales should hold steady in 2001 at 894,000 units, while housing starts should rise 0.9% or 1.62 million units. The national median existing-home price is expected to be $146,300 for this year as a whole, a 5.5% increase over 2000, while the typical new home price is projected to be $175,600 in 2001, up 5.7% from last year.

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