America's Building Boom Bodes Well for Economy

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There's no place like home -- for the economy. Though the purchase of new homes dipped slightly in December, the Commerce Department announced on Tuesday that new home sales surged to 888,000 in 1998, the highest since 1963. The news brought smiles from administration officials, since the figures reflect the success of the current economy and constitute one of the driving forces for its continued posterity. "Last year was the best year not only for new homes, but also for existing homes," says TIME senior economic reporter Bernard Baumohl. "The fact that 5 million homes were sold in all reflects several facts: low mortgage rates, low unemployment, and a booming stock market. All have effectively increased household wealth and given Americans the means to make down payments."

This heralds more good news for the future, says Baumohl, "because the housing market has a multiplier effect on the economy." Buying a house has a number of ancillary ramifications on other industries. For instance, it spurs homeowners to buy such things as furniture and home electronics equipment, and it prompts them to undertake a host of home-improvement projects. Economists believe that the 1999 housing market is likely to follow in the footsteps of 1998, but at a slower pace. "With the maturing of the baby boom generation, household formation is slowing down," says Baumohl, "and that will reduce demand somewhat for new and existing homes." Still, predictions call for some 800,000 new homes this year. If correct, that will mean 800,000 new welcome mats on America's economic doorsteps.