BANKING

A hot housing market, long the linchpin to the region's economy, has had a frosty reception so far this year. Building permits for single-family homes in New Hampshire were down 20 percent in January from a year ago. And existing home sales in the Northeast dropped 10 percent a month into 2006, the U.S. Census reported.

"One month does not make a trend," said Steven Berman from the Census Manufacturing and Construction Division. But there is little denying that even the slightest increase in interest rates can cool the real estate market. With that said, industry experts are cautiously saying it is too early to detect a 2006 trend until the building season kicks off in earnest this spring.

"This is almost always the slowest part of the year as far as mortgage money," said Gerald H. Little, president of the New Hampshire Bankers Association.

While winter may have masked borrowing or housing indicators, there's no hiding from a Wall Street Journal prime interest rate that, at 7.5 percent, is 2 percent higher than a year ago. Federal Reserve officials raised its benchmark interest rate from 4.25 percent to 4.5 percent in January, up from 1 percent in early 2004. They did so, they said, to stabilize the market and in hopes of offsetting potential inflation pressures from high energy prices.

Housing sales and construction rates in New Hampshire could very well skip along due to sustained housing demand. Sale prices are likely to, according to a February report by the National Association of Realtors. The association said that, despite existing home sales easing in January, home prices continued to appreciate at double-digit rates. The state cannot escape the fact the housing inventory has not kept pace with the region's population growth, said Kendall L. Buck, executive vice president of the Home Builders & Remodelers Association of New Hampshire. A higher interest rate may not be too bad, as long as it is not a dramatic increase, he said.

"The housing market was the main reason the economy perked along the past couple of years," Buck said. The 7,699 housing units permitted in 2005 represented about a 14 percent reduction from 2004, according to Buck. He said that with the state's population growth and housing needs, the state needs to average about 8,700 new housing units a year.

Buck said the possible crunch could sock the Seacoast particularly hard. He cited a 2005 report from the National Association of Home Builders that Rockingham and Strafford counties are among the nation's least affordable housing markets. The report found just 42 percent of homes sold in the first quarter of 2005 were affordable to families earning the $73,000 median income; the median price of homes sold was $275,000. Perhaps more than any negative effect from interest rates, Buck is concerned about communities putting in place policies that restrict development and housing growth.

In New Hampshire, 72.6 percent of homes are occupied by owners, according to the state's Economic and Labor Market Information Bureau. Between 2000 and 2004, the state added 28,647 housing units, according to the bureau. There are now at least 575,671 units. Sales of existing homes increased by 18 percent between 2001 and 2004, from 20,009 to 23,577. The average sale price during that time increased 35 percent, from $186,398 to $252,723.

Energy prices will only add to the burden in 2006, according to the New Hampshire state profile compiled by the Federal Deposit Insurance Corp. Prices this year are expected to increase by an additional 10 percent, with lower income households the most affected by the higher costs.

Sales of existing New Hampshire homes, both single-family and condominium sales have been strong in recent years, but the FDIC indicated they were off 3 percent to 4 percent heading into 2006. Shadowing the rise of interest rates across the board, the one-year adjustable mortgage rate averaged an almost four-year high of 5.43 percent coming into 2006, while the 30-year fixed rate averaged a three-year high of 6.28 percent, according to the FDIC profile.

New Hampshire's 13.5 percent population growth is more than double the rate of the rest of New England. The state budget has also benefited from the strong real estate market. The real estate transfer tax in recent years was a bright spot for budget writers, noted David Juvet, senior vice president of the Business & Industry Association of New Hampshire.

After a stronger than expected 2005, the economy appears to be leveling out, at least from anecdotal evidence, said Peter Hildreth, commissioner of the New Hampshire Banking Department, "Obviously there's been a tightening of their margin but I haven't heard of a slowing down," Hildreth said. "What was crazy in Concord has slowed down."