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And they forecast that mortgage interest rates would climb slowly above their current level (in the 5.8% range) as the year progresses and the economy expands, but that mortgage rates for this year would average about half a percentage point lower than last year.
 David Seiders, NAHB’s chief economist, noted that “a huge decline” in non-residential construction has been beneficial to home builders, easing up demand for construction workers and for the most part stabilizing the prices of building materials. Calling it “the weakest part of the U.S. economy,” he said this sector “feels like it’s scratching around for a bottom now.”
Builders may also have been helped some by “an unbelievable contraction” in the production of manufactured (HUD-code) homes, Seiders said. They have slumped from an annual rate of 375,000 in the late 1990s to about 125,000 in the current quarter, he said. “This is a real disaster story, but it opens up more room for conventionally built single-family homes.”
While housing has contributed to growth in the nation’s economy through the past recession and into the current period, Seiders said that one question for the economy is what will happen when housing activity tapers off a little and is no longer a “growth engine” for the Gross Domestic Product.
 David Wyss, chief economist for Standard & Poor’s, said that he doesn’t expect business spending to “take the lead” in the economy anytime soon because only 73% of the nation’s industrial capacity is currently being used. Also, consumers, who demonstrated resilience in the aftermath of September 11 and in the midst of significant job losses, appear to be “spent out.” As a result, he expects the recovery to be “disappointing” and “sluggish,” for at least a few more quarters.
Wyss forecasted that capital spending on equipment and high-tech would proceed at roughly half the 15% growth rate that typically occurs in a vigorous economic recovery. Most of the demand is coming from replacing short-lived, five-year old computers, “and that doesn’t get us back to boom times,” he said.
Fiscal stimulus — including about $100 billion spent on the war and a tax cut of perhaps $450 billion — will help keep the economy growing, he said, and strong monetary stimulus already is in place.
“Deficits are needed in the short run,” Wyss said, but the problem is that it will be difficult to get back to a balanced budget” when the economy is stronger, and that will lead to higher interest rates, to the detriment of consumer spending. He said he didn’t expect to see another balanced budget in his lifetime.
Wyss looked for little economic stimulus coming out of the stock market, which he believes has entered into “a period of sub-normal gains.” He added that, “the market will level off and will look a lot less exciting than in the ’80s and ’90s.”
As for where this will leave overall economic growth, “after the war, we will go to where we were before the war,” which would leave annual growth in the GDP at 2.9%, he said.
 Frank Nothaft, chief economist for Freddie Mac, said that fiscal and monetary stimulus would push economic growth toward an annual rate of 4% in the second half of 2003, up from about 2%-2.5% in the first half.
Nothaft said that mortgage rates, which have been at their lowest levels in more than 40 years, would continue to be “a powerful stimulant to the housing sector.” He predicted that 30-year, fixed-rate mortgages would average between 5.75% and 6.25% this year.
The current refinancing boom could last a couple more months, he said, but will drop off as mortgage rates push a little bit higher.
Just refinancing an average $130,000-$140,000 home loan last year reduced monthly payments by $100, he said, “and that is just as good as a tax cut.” Also, in cash-outs from refinancing last year, home owners “took away an extra $90 billion from the settlement table,” he said.
Photos by Morris Semiatin
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