This year is shaping up to be a good and stable period for real estate. At least that is the prediction of most analysts, who need to make educated guesses in projecting the market for such a volatile industry.
Interest rates for home mortgage loans, while remaining low, will rise a bit during the year. However, there will be no bursting of a "housing price bubble" followed by a dramatic drop in values, most analysts agree. Continued low interest rates and modest economic growth will keep home sales strong and give commercial real estate a boost in 2003, says a report from the National Association of Realtors. Interest rates are expected to hover in the 6.2 percent to 6.8 percent range, up about a percentage point from the 40-year low they reached in late 2002.
The projected rates are low enough to keep money flowing into home sales at a pace more sustainable than last year's record rate, the report said. Sales of existing and new homes hit record highs last year, despite sluggishness in the broader economy. This year, analysts project sales of 5.3 million existing homes and 900,000 new homes.
"To a great extent, continuing low interest rates will offset the effects of uncertainty over the economy," said David Lereah, association chief economist.
Commercial real estate transactions were constrained last year, dampened by flat business spending. However, trends were beginning to point up from levels attained in 2001, thanks in part to small- and medium-size companies taking advantage of low interest rates to buy real estate.
"The entrepreneurial middle-market user is more interested in owning now than leasing, based on capital structure and low interest rates," said Garry Weiss, national director of Integrated Industrial Solutions, a division of First Industrial Realty Trust. Residential and commercial property markets are expected to benefit in 2003 from continued poor equity yield in the stock market.
With key stock indexes struggling against steep price declines, consumers and investors will keep looking to real estate as a solid, well-grounded investment with stable price growth. That will keep capital flowing into real estate even as interest rates rise.
At the same time, most analysts agree neither residential nor commercial markets are likely to see major downward price swings this year. Nationally, average home prices will probably rise about 4 percent this year. That's down from 6.8 percent last year.
There is a strong case against the view of some analysts that housing is following the stock market into a speculative bubble. "Plain and simple, people are buying homes to live in, not to speculate with," Lereah said.
For residential and commercial markets, job creation holds the key to business this year and beyond. On that front, the signs are fairly positive. Unemployment is expected to ease.
A strengthened employment picture could help drive up interest rates, which could slow sales. But more jobs might also increase economic stability and lay the foundation for solid performance in all property sectors this year.
Overall, prospects for a strong real estate market are excellent.