Historically strong home sales expected in 2006 as upward trend coolsMortgagePress.comhousing market, home sales, National Association of Realtors The housing market for 2005 marked a fifth consecutive annual record, and sales activity in 2006 is expected to have the second best year in history, according to the National Association of Realtors (NAR), though price growth rates are expected to fall to more gradual levels. David Lereah, NAR's chief economist, said that market conditions are still favorable for housing. "The slowdown amounts to a tapping of the brakes on a hot market," said Lereah. "Home sales are coming down from the mountain peak, but they will level-out at a high plateau - a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing." The 30-year fixed-rate mortgage should trend up modestly and reach 6.7 percent during the second half of 2006. "A lot of demand has been met over the last five years," said Lereah, "and a modest rise in mortgage interest rates is causing some market cooling. Along with regulatory tightening on non-traditional mortgages, there will be fewer investors in the market this year. This will preserve generally favorable affordability conditions and keep the housing market at a more sustainable sales pace." The national median existing-home price for all housing types, which experienced a surge estimated at 12.9 percent to $209,100 for 2005, is expected to rise another 5.1 percent in 2006 to $219,700. Existing-home sales rose approximately 4.7 percent to 7.1 million in 2005, but are likely to decline 4.4 percent in 2006 to 6.79 million. The median new-home price is likely to rise six percent from about $231,300 in 2005 (a 4.6 percent increase that year) to $245,200 in 2006, as higher construction costs impact the market. New-home sales, after increasing approximately seven percent to 1.29 million in 2005, are forecast to drop six percent to 1.21 million in 2006 - the second best on record. Total housing starts should decline 6.6 percent to 1.94 million units in 2006 after rising approximately 5.8 percent to 2.07 million in 2005. NAR President Thomas M. Stevens said that housing has always been the soundest investment for most families. "As the old saying goes, homeownership beats the heck out of a drawer full of rent receipts," said Stevens, senior vice president of NRT Inc. According to the Federal Reserve Survey of Consumer Finances, the median net wealth of a homeowner household is 36 times higher than that of a renter household. Stevens said that the national median home price has never declined since reliable record keeping began in 1968. "Although there can always be a temporary decline in a given area, if jobs are weak and there is an oversupply of homes on the market, people who stay in their homes for a normal period of homeownership generally see healthy returns over time. There are no guarantees, but there are very good odds," said Stevens. The U.S. gross domestic product grew approximately 3.6 percent in 2005 and should grow four percent this year. The unemployment rate is expected to decline to 4.8 percent by the end of 2006. The Consumer Price Index rose approximately 3.4 percent in 2005 and is projected to grow another three percent in 2006. Inflation-adjusted disposable personal income rose approximately 1.3 percent in 2005 and is expected to increase by 4.6 percent in 2006. For more information, visit www.realtors.org.
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