October 1, 2001 - From the October, 2001 issue

What Will 9/11's Impact Be On The Real Estate Market? National Association Of Realtors' Reflections On Housing

One of the consistent factors keeping the U.S economy energized through the past couple years and during small economic downturns and corrections has been the housing market. However, the events of Sept. 11 have caused drastic ripple effects throughout every facet of all economic markets and this time, the housing market may be effected as well. TPR is pleased to provide some insight into the possible short- and long-term ramifications of 9/11 in this excerpt of a National Association of Realtors' White Paper, Attack on America: Economic Consequences For The U.S. Real Estate Markets.

By: National Association of Realtors


Today Americans share a trauma of immense proportion as we feel the pain and sorrow associated with the horrific events of September 11. The attack on America was an attack on our homeland that killed thousands of people. Its impact will be felt for months and years to come.

But it was also an attack on the U.S. economy, shattering one of America's great symbols of economic strength-the twin towers of New York's World Trade Center. Its aftershocks continue to inflict serious economic and financial damage to what is still the world's greatest economy. With the U.S. economy already slipping towards recession even before the tragic events, the economic shock from the terrorist attacks will most likely throw the U.S. economy into an economic downturn. This will have enormous implications for the nation's real estate markets.

Before September 11, the housing sector was the only major sector of the economy standing tall; indeed, the health of the housing market was the primary reason that the U.S. economy did not succumb to recession. However, the notion that the housing sector can continue to keep an ailing economy afloat now appears distant, at least in the near term. In fact, as we continue to assess the residual economic damage from the attack on America-massive layoffs, the crippling of the airline industry, and a rapid deterioration in equity values, to name a few-it becomes increasingly probable that the housing sector may also experience a sluggishness that it has so adroitly avoided for so long.

But as the remaining pages of this report will demonstrate, housing will still remain the healthiest sector in the economy, and will also be strong enough to stand up to the challenges of a new set of priorities for America. After a brief slowing of activity, future housing demand looks favorable and mortgage rates will remain attractive.

This report provides a preliminary evaluation of the economic consequences of the Attack on America for the U.S. real estate markets. We acknowledge up front that an evaluation so early after the attacks may not prove fruitful due to data collection and data reporting problems. It may be several months before we, or any other organization, can gather a sufficient amount of credible data to formulate more in-depth and more precise evaluations and projections.

Impact on U.S. Real Estate Markets


Residential real estate markets will inevitably experience a slowing of activity as a consequence of the attack on America. All three primary determinants of housing demand-consumer confidence, job security and mortgage rates-will be significantly impacted by the events.

Consumer confidence is perhaps the most visible of the three, with the nation holding its breath to see if consumers retrench or invest in America by buying goods, services and stocks. Job security will most likely become a heightened issue during the next several quarters. The public announcements of massive layoffs in the industries that have been most impacted by the terrorist attacks are harming the American psyche, raising uncertainty surrounding job security. And finally, mortgage rates should continue to hover near or below historic levels in the immediate future as the Federal Reserve continues to pursue an accommodative monetary policy.

On balance, our forecast assumes that the difficult challenges facing consumer confidence and job security will more than offset the positive impact of historically low mortgage rates. As a consequence, housing activity will slow from its record-setting pace during the first half of 2001. It is important to note, however, that before the September 11 events, we were already forecasting a slowdown in housing activity from peak levels. The September 11 events have exacerbated this slowdown to some extent. It is also pointed out that home price appreciation is now expected to slow to some degree, but on a national scale, home prices will not fall in value for the year.


America may be entering a new era with a new set of priorities. A prolonged war against terrorism may change our way of life, as we know it, both politically and economically. Americans have lived comfortably off the peace dividend (created by the fall of the Soviet Union in 1990) for the past decade. Defense spending has fallen over 40 percent as a percentage of GDP since 1990. That is expected to be reversed over the next 10 years.

As America enters a new political and economic environment, so will Realtors®. The economy is in recession and our financial system is under a great deal of pressure and scrutiny. Our resources will be focused on military operations as well as re-building critical industries such as the airlines and insurance industries. Free trade may become a notion of the past, if it becomes costlier, due to the threat of terrorism, to trade goods and services across certain borders. Controls on immigration may accelerate which could tighten an already tight U.S. labor market. Finally, the Federal Reserve is expected to provide monetary accommodation for financial markets, providing lower short-term interest rates, but combined with excessive government spending, raising the spectre of rising inflationary pressure and federal budget deficits.

The new priorities for America paint a new picture for Realtors® looking toward the future. The operating environment may be somewhat different than just a historical moment ago. But in spite of these cautionary tales, housing still remains the healthiest sector in the economy, and is strong enough to stand up to the challenges of a new set of priorities for America. Future demand for housing looks favorable and mortgage rates will remain attractive. If Realtors® and all housing participants are to remain successful, they must find ways to adapt to these new priorities.


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