Experts do not expect hot market to cool down
By Michael Pare, Providence Journal Managing Editor

On the market on Norwood Ave. in Cranston. (Brian McDonald)In virtually every corner of Rhode Island, home sellers are not only getting their asking price or more for their homes -- they're getting it in record time.

Nothing is hotter right now, than the housing market.

According to the statewide Multiple Listing Service, for example, the appreciation of homes on the East Side of Providence -- from Jan.1 of this year through the end of June -- has been 30 percent. That's on top of a 20 percent appreciation registered in calendar year 2000. "There is a large influx of people from Boston and the Boston suburbs -- people living here who continue to work in Boston," said Sharon Steele, of The Sharon Steele Group in Providence. Steele, who is also the president-elect of the Rhode Island Association of Realtors, does a lot of business on the East Side. The influx of Boston workers, she said, bodes well because their salaries are higher and that often translates into greater support for charities and the arts community. Steele points to the real estate industry as a beacon of light in an economy that has darkened for so many other business sectors. "The housing sector has been the one bright light in a sluggish economy," she said. "It has continued to create employment for lots of ancillary businesses -- for builders and plumbers, electricians, tile installers."

The hot market has driven prices sky-high not only on the East Side, but also throughout the state. On Sowams Road in Barrington, a four-bedroom waterfront Colonial lists for $419,000. While in Lincoln, at Kirkbrae Estates, a four-bedroom Colonial "with everything" lists for $399,000. Another four-bedroom Colonial in Johnston, on the Greenville line, lists for $309,000. Even out in the most rural sections of the state -- prices are high. An "oversized" three-bedroom ranch in Burrillville -- with beamed ceilings and a fire-placed master suite with a Jacuzzi -- is on the market for $324,900.

But will the boom continue?

According to the National Association of Realtors, the answer is a resounding yes. With low mortgage interest rates, low unemployment and high consumer confidence, housing markets are expected to stay near historic highs, suggests the Washington, D.C.-based NAR. David Lereah, chief economist for the NAR, said earlier this month that he expects the favorable economic backdrop for housing activity to continue. "We expect the economy to gradually pick up steam during the second half of the year, yet inflation will remain tame," he said. "This should boost consumer confidence and keep the housing market rolling along at strong levels. Thirty-year fixed mortgage interest rates will rise and hover in the 7.3 range during the second half of the year, a little higher than we've seen but not enough to deter overall sales." NAR forecasts existing-home sales rising 0.7 percent in 2001 to a total of 5.1 million, still the second highest on record. New-home sales will rise 4.6 percent to a total of 918,000 units this year, a new record, and housing starts are forecast to rise 2.7 percent to a total of 1.6 million units in 2001. The association expects the national median existing-home price this year to be $145,300, an increase of 4.6 percent over 2000, while the typical new home price is expected to be $174,300 in 2001, up 3.1 percent from last year. NAR projects U.S. economic growth, as measured by the Gross Domestic Product (GDP), to be 1.7 percent for 2001, rising from a projected rate of 0.7 percent in the second quarter to 3.2 percent by the end of the year. Consumer price inflation for this year should be 3.3 percent. The association projects the unemployment rate to rise to 4.8 percent by the end of 2001, still low in historic terms. Inflation-adjusted disposable personal income is forecast to grow 2.4 percent this year.

Moderation for commercial markets

In other NAR news, the association expects moderation to be the buzzword for commercial real estate markets.

"We're seeing a cooling in most of the commercial markets that has been tracking the slowdown of the in the U.S. economy," said Lereah. "At the same time, there's a general balance in commercial real estate, which means more positive growth can be expected as the economy improves later this year." For the national office market, NAR reported that office employment dropped by 67,000 jobs during the first quarter in the 54 major markets tracked, mostly in temporary jobs. There was job growth in other sectors, but not enough to offset the loss of temporary jobs; this triggered a massive increase in sublease space. As a result, only 8 million square feet of office space was absorbed. Combined with a high volume of new supply, the vacancy rate rose to 10.4 percent in the first quarter - half of a percentage point higher than the fourth quarter of 2000. Inflation-adjusted office rent rose only 0.9 percent from the fourth quarter of 2000, but remained 7.5 percent above the first quarter of last year. Construction slowed to 48 million square feet in the first quarter, down from 65 million square feet under construction during the fourth quarter. Given the economic slowdown, the association expects modest office demand growth in 2001, with net absorption expected at 46 million square feet. With 150 million square feet of new space coming on-line this year, vacancy rates are expected to rise to 11.6 percent by the end of the year, compared with a near record low of 9.9 percent at the end of 2000. In the warehouse market, manufacturer inventories remain above desired levels and demand for warehouse space still managed to grow in the in the first quarter, according to the NAR.

Published 07/23/2001

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