NAR Boosts Home Sales Forecast

NAR: REALTOR® Magazine Online
The NATIONAL ASSOCIATION OF REALTORS® has again raised its forecast for the housing sector, with both existing- and new-home sales on pace to set an even bigger all-time record in 2005.

Existing-home sales are expected to rise 2.8 percent to 6.97 million this year; last month, the association was expecting 6.89 million sales—the record was 6.78 million in 2004.

New-home sales should increase 3.2 percent to 1.24 million in 2005, also a record. Total housing starts—single-family and multifamily—are forecast to grow by 5 percent to 2.05 million units, the second highest on record; the peak was 2.36 million in 1972. This year is seen to be a record for single-family construction, with 1.68 million homes started.

David Lereah, NAR’s chief economist, says that in each month of 2005 the forecast has been looking stronger than in previous projections.

“The housing expansion is continuing as more Americans take advantage of favorable conditions to achieve the dream of homeownership,” he says. “Earlier this year, we expected 2005 home sales to be the second-highest on record, but monthly sales have been at or close to record levels. Although we should come off of sales peaks in the months ahead, mortgage interest rates have remained lower than expected, and job gains are providing additional stimulus, meaning unprecedented sales totals this year.”

Lereah says the most notable problem in the housing market is the shortage of homes available for sale, as well as some shortages of building materials. “These shortages are proving to be a challenge for home buyers, builders and remodelers, and are continuing to put pressure on home prices,” he says.

He expects the national median existing-home price for all housing types to rise 9.4 percent this year to $202,600, with the typical new-home price increasing 5.8 percent to $233,900.
NAR President Al Mansell, of Salt Lake City, says low interest rates are keeping housing affordable in most of the country.

“We have to go back to the mid-1960s to see a period of comparably low mortgage interest rates,” Mansell says. “A big difference now is a decline in mortgage origination costs, plus a mushrooming in the availability of low- and no-downpayment loans. These are particularly helpful to first-time buyers in high-cost markets, but buyers need to shop loans and be aware of long-term consequences, and they may need to stay in their home longer to build enough equity to trade-up to a larger home in the future.”

The 30-year fixed-rate mortgage should rise slowly to 6.1 percent in the fourth quarter, and reach only 6.5 percent by the end of 2006. The 30-year fixed rate currently stands at 5.62 percent, according to Freddie Mac.

The U.S. gross domestic product is forecast to grow 3.6 percent in 2005, with the unemployment rate is seen averaging 5.1 percent. Inflation is expected to stay modest, with the Consumer Price Index rising 3.1 percent in 2005. Inflation-adjusted disposable personal income should grow 3.2 percent this year, while the consumer confidence index is forecast to average 104.