Despite Big Numbers, Housing Is Still Predicted To Increase

By: Blanche Evans: RealtyTimes
Oil prices are at record highs - $2.50 a gallon at the self-serve pump nationwide. That may slow consumer spending down a little, and cause some first-time homebuyers to think twice about buying a home just now. Or they might consider buying a less expensive home. Pressuring first-timers even more are interest rates, which are finally starting to creep up.

Yet, overall, homebuying conditions are still remarkably favorable. Mortgage interest rates are well under six percent. And the National Association of Realtors reports that housing is still on target to hit new records this year.

In fact, the NAR recently reported that out of 149 metropolitan statistical areas, 67 showed double-digit increases in housing prices for single-family homes. Only seven areas posted price declines, and those were generally modest.

The national median existing single-family home price was $208,500 in the second quarter, up over 13 percent from the second quarter of 2004 when the median price was $183,500. The median is a typical market price where half of the homes sold for more and half sold for less.

In all, 94 metro areas saw increases above the U.S. historic average of over six percent. Since 1968, prices generally have risen 1 to 2 percentage points faster than the overall rate of inflation, so a 13 percent increase in prices is incredible.

David Lereah, NAR's chief economist, said the price gains are unprecedented. "When you look at appreciation of home prices relative to the overall rate of inflation, these are the strongest increases on record," he said. "The continuing shortages of housing inventory are driving the price gains."

The strongest price increases in the nation were in the Phoenix-Mesa-Scottsdale area of Arizona, Cape Coral-Fort Meyers, in Florida, and Palm Bay-Melbourne-Titusville, Florida.

Sales are on fire for single-family and condos, with 42 states reporting higher sales than a year ago with the strongest in West Virginia and Washington. Sales are happening at an annual rate of more than 7 million homes annually.

"Record home sales are creating high demand for related goods and services, and they're creating new jobs," says Lereah. "The overall housing sector accounts for about a quarter of total economic activity. In addition, the growth in housing wealth is feeding into consumer spending, which is helping other segments of the economy."

That could put more money back into the pocket of the first-time homebuyer.

The Mortgage Bankers Association is predicting that housing won't cool off until 2006. The MBA's Chief Economist Doug Duncan says interest rates should remain low. "Despite a moderate increase from a currently low rate environment, interest rates will still be quite low by historical standards," he says.

What goes up will come down, but economists are expecting only slight moderation in housing sales.

Says Frank Nothaft, vice president and chief economist at Freddie Mac, but low long-term rates will continue to support residential and commercial real estate activity. "As mortgage rates drift upward, we expect to see some moderation in housing activity. With that said, though, we still expect that 2005 will undoubtedly be a record year for sales and new construction."

That said, it looks like the market's still good for first-time homebuyers overall.