By Alison Rice. When the United States attacked Iraq in 1991, the housing market held its breath as potential buyers stayed tuned to CNN for hour after hour. "I remember it very vividly," says Steve Wall, president of Arlington, Texas-based Choice Homes. "The last time, people stopped and watched the war on television ... there was a three- to four-week period where everything stood still."
Not this war. "We sold more houses in March than we've done in the history of the company," says Wall, who says he never would have predicted such results. "I think people stayed home and watched at first, and then they went on with their lives."
Choice Homes wasn't alone in its unexpected March madness. Across the country, builders who had braced for a spot of war-related weakness this spring found themselves doing business as usual. In a recent online poll taken by NAHB publication "NBN Online," 41 percent of readers said they expected the Iraqi conflict to have "little or no impact" on home sales in the weeks to come.
That was the case at Hovnanian Enterprises, a public builder based in Red Bank, N.J. "We've seen no change," says Kevin Hake, vice president and treasurer. "The markets that were softer prior to the Iraq war continue to be softer, and in those that are stronger, we're opening new communities and seeing excellent activity, traffic, and rising prices."
The biggest advantage builders had in this round of Middle East conflict: interest rates. As opposed to early 1991, when 30-year rates hovered around 9.5 percent, according to Freddie Mac's historical data, 30-year fixed rates hit historic lows this spring: 5.75 percent in March. Twelve years ago, one-year ARMs were higher than that at 7.74 percent in January 1991, the month the first Gulf war began.
"Consumers are opportunistic, and this is a very large opportunity," says Doug Duncan, chief economist for the Mortgage Bankers Association of America. "This is a large ticket item, which they can buy at historic low cost to them because of the interest rates, and saving 1 percent on a mortgage over the long term results in saving thousands of dollars."
Lured by low rates and the urge to cocoon, buyers, especially first-timers, hustled to purchase in March before good news from Baghdad could push rates back up. Sales at Madison, Wis.-based Don Simon Homes soared 25 percent in March, with $12.5 million worth of contracts written, according to president David Simon. Builders elsewhere also benefited. "Anything under $150,000 is selling like gangbusters," says Wall, of Choice Homes.
Builders have seen soft spots. Communities that attract military buyers have been softer. Move-up sales have slowed as buyers require more time to sell their existing homes. Luxury product has lingered on the market. And entry-level buyers on the fringes have had some difficulties qualifying for financing. But overall, the war's impact on housing has been limited, a relief to builders who feared a longer conflict.
Now attention has turned to the sputtering economy.
"There's no question the high level of uncertainty leading up to the war in Iraq dampened consumer spending, consumer confidence, business management confidence, and business spending," says Frank Nothaft, chief economist for Freddie Mac.
With those worries vanquished, though, Nothaft has good news for builders. He expects gradually accelerating economic growth in 2003, as the country feels the boosts of government spending, a potential tax cut, and last November's interest rate cut.
Nothaft's best prediction for builders, besides the recovering economy? Mortgage rates of 6.25 percent at year's end. "It could be another record year," he says.