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Industry groups forecast strong finish for 2004 housing market

National Mortgage Professional
Jul 07, 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 year. 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 percent. "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.
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