By Bruce Smith

The landscape of our lives changed irrevocably over the course of a few terrifying hours on Sept. 11, 2001. Never again will we view our families, our homes, our nation, or our world in the same light. Even Old Glory, the enduring symbol of all that's good and right about these United States of America, has taken on a somber new significance.

The twin towers of the World Trade Center symbolized America's enduring economic strength. But as the bitter events of Sept. 11 have shown us, destroying a symbol cannot destroy our nation. Instead, it strengthens our resolve.

Housing lights

That's why it's so important that our industry now seize the day and move forward in one of its most enduring roles--leading the U.S. economy to recovery.

The economy was already weakening before the events of Sept. 11, and housing had assumed a much greater than typical role during much of 2001. While other sectors were struggling, housing remained a bright spot, helping to prop up the economy in the face of daunting circumstances.

Now, even though overall economic activity, including housing starts and sales, was expected to decline during the fourth quarter of 2001, housing is well positioned to lead the economy forward.

Rates low

The primary reason is low interest rates. Long-term mortgage rates fell to a 30-year low in the fourth quarter of 2001. At the end of the year, interest rates on 30-year mortgages were well below 7 percent and rates for ARMs were hovering in the 5 percent range.

Illustration: John Hansel

Such low rates allow more families to become homeowners and prompt discretionary buyers to move into the market. These home sales stimulate the economy directly through the transaction and indirectly through related purchases and expenditures.

Low rates also provide homeowners the opportunity to reduce mortgage payments by refinancing, which frees up their resources for discretionary spending.

Demand strong

Another key element in the housing equation is strong underlying demand for housing. New households are being formed at an annual rate of 1.3 million per year, and this rate of growth is expected to continue for the next decade.

Housing's wealth effect also plays an important role in stimulating the economy. People spend more when they have more assets, and because of impressive gains in home values in recent years, millions of homeowners are tapping the equity in their homes to fund a wide range of purchases and expenditures.

A lean inventory of unsold housing is another important factor in today's economic equation. Unlike previous downturns, overbuilding isn't an issue, so builders aren't burdened with hefty carrying costs, and the inventory isn't a drag on the overall economy.

Without a doubt, housing is uniquely positioned to lead the economy to recovery. In commemoration of all that our nation lost last September--and to prove that destroying symbols of our nation's economic strength will not destroy its economy--that's exactly what we intend for housing to do.