Soft Landing for Housing.

• Author: Fisher, Jeffrey D.
• Position: Year 2000 overview - Brief Article - Statistical Data Included

Housing starts have been slowing throughout the year 2000. During the first quarter of the year housing starts were at a 1.7 million unit pace but by the third quarter the pace had slowed to about 1.5 million units. The average for 2000 will likely come in at around 1.6 million housing starts but for 2001 the rate is likely to be about 1.5 million starts. This is not a drastic decline but suggests a "soft landing" for housing as the impact of higher interest rates and perhaps lower equity prices has had an effect on housing markets. New and existing home sales are also likely to come in at a lower level for the year 2000 than the previous year and continue to decline in 2001.

At the same time, the "good news" is that the percent of Americans who own their homes hit a record high 67.7 percent in the third quarter of 2000 according to the U.S. Department of Housing and Urban Development. The relatively low mortgage rate environment and steady home prices has no doubt contributed to the ability of more people to purchase a home. In fact, the national median home price for both new and existing homes actually declined in 1999 to $133,000 from $147,000 the previous year. The deductibility of mortgage interest for the purposes of calculating federal income taxes no doubt also continues to encourage home ownership. The IRS recently reported that nearly 31.5 million federal income-tax returns for 1998 included a deduction for home-mortgage interest payments. This represents about one fourth of all tax returns and a lot of voters who are unlikely to support elimination of the home mortgage interest deduction (even though Morton Marcus has stated during past Outlook Panels that this just subsidizes rich people)!

Lower home prices in 1999 resulted in an increase in the housing affordability index to 137.8. An index of 100 indicates that the median income family can just afford to purchase the median price home at current mortgage interest rates. A rate over 100 indicates...