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American Morning

Housing Industry Helped Sustain Economy

Aired April 02, 2002 - 09:39   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JACK CAFFERTY, CNN ANCHOR: Let's return to the more mundane world of business for a moment, and make mention of the fact, and it is important, that -- probably the primary reason that the recent recession wasn't any deeper or longer than it was, was the housing industry in this country. Home building has gone literally through the roof.

The latest government figures out yesterday show the construction spending for February was nearly double what was expected, and that is good news for a recovering economy. Andy Serwer, the "Fortune" magazine editor-an-large, and frequent visitor here to this program is along to kind of put this in context, but I guess lower interest rates have to a big reason.

ANDY SERWER, EDITOR AT LARGE, "FORTUNE": Yes, that's true, Jack. We will get to that in a second. But it really was incredible last year. As the economy was sliding into recession, as we had 9/11, as we had things going to hell in a hand basket, the economy was boosted by the housing market. New home sales, home construction, we see here continued to be strong. And right now, it really is sort of the hot topic du jour on Wall Street. It is what people are talking about right now. Can this housing market stay strong as we sort of recover and move ahead this year?

CAFFERTY: You know, as the Fed was cutting interest rates -- what was it, 12, 13 times in the last year? I can remember doing business shows downstairs, and we had these people come on, and say there's no visible effect of these lower rates. The economy is continuing to weaken, we have people losing their jobs. One of the biggest effects of lower rates is loans, mortgages. And, obviously, the Fed gave powerful medicine to the housing industry, helping it to stay as strong as it was.

SERWER: It did work, and housing about 14 percent of the gross domestic product, so it is a really important sector. You can see here, new homes up 5.3 percent in February. 907,000 new homes sold in 2001. Just went gang busters, and when you talk about interest rates, you're right. That was the fuel that really got this fire going. We went from 8.7 percent in 2000 down to 6.7 percent late last year. We're now creeping back to the 7 percent level, and that is the key, Jack. Is that going to kill the golden goose here? The problem is what -- we get these boom cycles, but we are not seeing this tremendous over-supply. A lot of times, builders build on spec, they will build a whole community... CAFFERTY: Sure.

SERWER: ...without having sold them. But right now, all of the homes being built are sold. So that's good news, suggesting we don't have a bubble in that sector.

CAFFERTY: And as long as interest rates stay down reasonably low, they can probably creep up a little bit. As long as they don't go too high, maybe over 7 percent on a 30-year conventional mortgage, there should be a lot of demand for those loans.

SERWER: That's right. And I was down in Maryland recently -- speaking of Maryland, I have got to put on my Terp hat here.

CAFFERTY: Did you go there?

SERWER: No, I didn't, but I am from the great state of Maryland.

CAFFERTY: Or are you just trying to suck up to the executive producer on the show here.

SERWER: The executive producer, of course, Kathy O'Hearn (ph) is a -- has some Terp blood in her veins.

CAFFERTY: Trying to get more time for your segment.

SERWER: Yes, well that too. But I have been watching Maryland basketball for 30 years, they won last night, so I am proud to wear the hat, and it was a great day for the Terps down there.

CAFFERTY: A remarkable likeness to the Maryland Terrapin, when you have that hat on there.

SERWER: I will take as a compliment, that I look like a turtle.

CAFFERTY: Take it however you want. Still to come, much more serious news. Andy Serwer, "Fortune" magazine.

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