Industry groups forecast strong finish for 2004 housing market

Industry groups forecast strong finish for 2004 housing market

July 6, 2005

Industry groups forecast strong finish for 2004 housing marketmortgagepress.comhome sales, home prices, housing growth
Stronger than expected home sales and higher median prices have
caused the National Association of Realtors to revise its year-end
forecast upward. Existing home sales are expected to jump 7.9
percent to 6.58 million in 2004, well above last year's record. For
2005, NAR projects 6.38 million sales, which would be the second
highest level on record. Commercial and multifamily mortgage
originations were up 15.2 percent in the third quarter at $34.1
billion, 2.3 percent higher than the second quarter and 15.2
percent higher than the third quarter of 2003.
A large pool of first-time homebuyers is providing liquidity to
the housing market, according to the "NAR Profile of Homebuyers
and Sellers Survey." The survey is based on transactions from
mid-2003 to mid-2004 and found that first-time homebuyers accounted
for four out of 10 home purchases.
"Strong activity by entry-level homebuyers has provided solid
and substantial growth to the housing market over the last decade,"
stated NAR chief economist David Lereah, who pointed out that
demographics favor a continuation of this trend because
"echo-boomers, the children of the baby boom generation and almost
as large, will be in the prime years for buying a first home for
the next decade. These findings demonstrate a fundamental
underlying demand that will be driving the housing market at a
higher plateau for the foreseeable future."
According to NAR, the typical first-time homebuyer is 32, has a
household income of $54,500 and makes a three percent down payment
on a home costing $139,000. The national median existing home price
is projected to rise 7.9 percent to $182,500 for the year. The
median new home price should increase 8.9 percent to $214,600. New
home sales will rise 8.9 percent to 1.18 million this year and 1.13
million are forecast for 2005, just shy of the record expected this
Lereah predicts the 30-year fixed-rate mortgage should rise
slowly but average only 6.4 percent next year.
"Because long-term mortgage rates are still well below the peak
levels reached [in May], housing starts are currently exceeding
expectations," said Frank Nothaft, Freddie Mac's chief economist.
"With no dramatic rise in rates on the horizon, the housing
industry should continue to be healthy well into the future."
A November survey by the National Association of Home Builders
shows that builders are optimistic about the momentum in the
housing market. That confidence is based not just on historically
low mortgage rates, but also on the "interest they are seeing from
customers," said NAHB economist Michael Carter. He expects a
pick-up in job growth to support the housing market in 2005 despite
rising mortgage rates.
NAR projects housing starts to reach 1.95 million this year, the
highest level since 1978; housing construction is projected at 1.87
million units in 2005. NAR is also forecasting tame inflation with
the Consumer Price Index rising 2.7 percent this year and 2.1
percent in 2005. The U.S. gross domestic product should grow by 4.4
percent for all of 2004 and another four percent in 2005. The
unemployment rate is projected to decline to 5.1 percent by the
second half of next year. Inflation-adjusted disposable personal
income is forecast to increase 3.1 percent this year and 3.9
percent in 2005, while the consumer confidence index should rise to
105 in 2005.
In 2005, Lereah expects the median existing home price to rise
five percent and the typical new home price to grow by 5.8
"The slowing rate of price growth will be good news for
first-time buyers, but since inflation is expected to remain
modest, home prices will still be rising a little faster than the
historic norm of one to two percentage points above the rate of
inflation," he said.
A quarterly survey by the Mortgage Bankers Association found
that commercial and multifamily (five or more units) mortgage
originations are on course for a record-setting 2004. In the third
quarter, volume was up 15.2 percent from a year earlier and up 2.3
percent from the second quarter.
"Continued demand for commercial mortgages--from both borrowers
and lenders--is setting up 2004 to break 2003's record origination
levels," said MBA chief economist Doug Duncan. "And while modestly
rising interest rates could take some wind out of the sails,
stabilizing market conditions and low delinquency rates will likely
keep capital flowing to commercial and multifamily properties."
The MBA reported that purchases by commercial mortgage-backed
security conduits accounted for $9.4 billion of loan originations
in the third quarter, followed by commercial banks at $8.2 billion;
life insurance companies at $7.4 billion; and Fannie Mae and
Freddie Mac at $5.1 billion.