Trade groups forecast strong 2005 after ‘04 boommortgagepress.comhousing sales forecast, 2005, real estate market
Despite signs of a slight softening in the real estate market,
industry associations project that the market will remain robust in
2005. After a record-breaking 2004, with expected purchase mortgage
originations of nearly $1.48 trillion, purchase originations are
forecast to moderate a bit to $1.45 trillion in 2005, according to
the long-term forecast by the Mortgage Bankers Association. The
refinance market is expected to decline from $1.19 trillion in 2004
to $68 million next year and $46 million in 2006.
"We see a number of demographic, economic and industry trends
that are supporting home buying," said Jay Brinkmann, MBA's vice
president of research and economics. "First, low rates are keeping
mortgage payments very competitive with apartment rents, so we see
apartment vacancy rates increase as homeownership rates increase.
Second, low mortgage payments are opening homeownership
opportunities to many immigrant families. Third, the mortgage
industry has shown itself adept at using the capital markets to
bring greater liquidity to a number of innovative products like
hybrid ARMs, low documentation loans and loans to borrowers who
want to buy a house while they are still rebuilding their
credit."
The National Association of Realtors is also predicting that
2004 will be a record-breaking year and that 2005 will reach
near-record levels for new and existing home sales. NAR projects
that there will be 6.55 million existing-home sales this year as
opposed to last year's record-setting 6.1 million existing home
sales, a rise of 7.3 percent. New home sales are expected to reach
a record 1.17 million in sales for 2004, an increase of 7.7 percent
from 1.09 million sales in 2003. Housing starts are forecast at
1.93 million units in 2004, up from 1.85 million in 2003; housing
construction is expected to come in at approximately 1.84 million
units in 2005.
"At the beginning of 2004, forecasters were calling for a
gradual rise in mortgage interest rates, but we've experienced a
pleasant surprise for the housing sector," said David Lereah, chief
economist for NAR. "The 30-year fixed-rate mortgage is now hovering
close to 5.7 percent, and even though we're expecting rates to rise
slowly, they will stay in a historically low range and a strong
momentum of home sales will carry over into 2005."
In June, Freddie Mac reported the 30-year fixed-rate mortgage
averaged 6.29 percent. The national median existing home price is
expected to grow by 6.9 percent this year to $181,700 and the
median new home price is seen to increase nine percent to $212,600.
The median existing-home price is projected to rise 5.3 percent in
2005, while the typical new home price will grow by 5.2
percent.
"We should see somewhat slower price appreciation in 2005, but
as we enter the year with inventories remaining low, home prices
will continue to rise a little faster than historic norms," said
Lereah.
Likewise, condominium/co-op sales are also on pace for a
record-setting 2004. While slowing a bit from the 1.01 million
units of sales activity in the second quarter of 2004 to the
seasonally adjusted 990,000 units in the third quarter, this is
still 5.2 percent above the 941,000-unit level of sales activity in
the third quarter of 2003. The median existing condo price was
$197,000 in the third quarter of 2004, 18 percent higher than in
2003. The median condo price has been rising at more than double
the rate of increase of the median price of single-family
homes.
The year 2004 has been exceptional for the real estate industry,
but a few minor bumps in the road do appear ahead. While
residential markets remained robust in most parts of the country,
in September and early October there was a softening from the
activity during the summer, according to the Federal Reserve
Board's Beige Book.
Evidence of this softening can also be seen in figures released
by the U.S. Department of Commerce. The U.S. homeownership rate
fell to 69 percent in the third quarter from 69.2 percent in the
second quarter, with the rate for African Americans falling the
most, from 49.7 percent to 48.4 percent. While the ownership rate
for whites also fell slightly, Hispanics made some gains. This was
undoubtedly due to the decrease of the typical American familys
ability to afford to buy a median priced home.
The NAR composite Housing Affordability Index stood at 128.6 in
the third quarter of 2004, down from a revised 136.2 a year
earlier. The latest index number means that the typical American
household had 128.6 percent of the income necessary to purchase a
home at the third quarter median existing home price, which was
$188,500. There was also a decline of housing starts, which dropped
8.2 percent in September to a seasonally adjusted rate of 1.54
million units according to Commerce Department figures. Overall
starts, which include multi-family housing, came in at 1.90 million
units, declined six percent from the previous months results.
Despite these negative numbers, the trade associations remain
very optimistic and see no signs of the dreaded "housing bubble" on
the horizon. They believe the fundamentals are in place for
sustained growth in 2005.
David Lereah expects a gradual easing in the housing sales pace
in the first quarter of 2005, with the housing market "coasting at
historically high levels as mortgage interest rates rise. At this
pointwith strong fundamentalswe project next year [2005] will be
the second-best overall year for the housing market."
