Last year was a record-breaking year for U.S. homeownership, new and existing home sales, and for commercial and multi-family loan originations. While the mortgage marketplace is expected to moderate a bit from the record-setting pace of 2004 because of rising interest rates, 2005 is expected to be the second-best year on record.
For the year, the homeownership rate averaged 69 percent, up from the 68.3 percent record set in 2003, according to the U.S. Department of Housing and Urban Development.
"These numbers show that housing is still leading the way in our rapidly recovering economy," said HUD Secretary Alphonso Jackson.
According to the U.S. Census Bureau, the U.S. homeownership rate ended 2004 at 69.2 percent, a record level first achieved in the second quarter. The fourth quarter data indicated that the homeownership rate among blacks stood at 49.1 percent, down from 49.4 percent in the same period of 2003. Meanwhile, the Hispanic homeownership rate hit 48.9 percent in the fourth quarter, up from 47.7 percent a year earlier. The homeownership rate for whites was 76.2 percent, up from 75.5 percent in the fourth quarter of 2003.
While the December pace for existing home sales declined 3.3 percent to 6.69 million units from 6.92 million in November, total existing single-family home sales surged in 2004 to 6.68 million, up from 6.1 million in 2003 and marking the fourth consecutive record-breaking year, according to the National Association of Realtors.
"Our sense was that November sales were the peak for the current housing cycle, but activity remains strong," said NAR Chief Economist David Lereah. "There is no sign of a downturn. Home sales will continue at historically high levels, and 2005 is expected to be the second-best year on record for the housing market."
New single-family home sales totaled 1.18 million in 2004, easily beating the previous years record of 1.09 million by 8.3 percent, according to the U.S. Census Bureau. This includes a 13 percent drop in sales in November and no rebound in December. Economists with the National Association of Home Builders said they didnt detect any "softness" in the new home market, but do expect a three to four percent decline in sales because of rising mortgage rates.
Commercial and multifamily mortgage bankers also set records in 2004. According to the Mortgage Bankers Association, the $136 billion in loan originations reported for 2004 were up 16 percent from the $117 billion reported in 2003.
"The continued availability of capital from lenders and demand from borrowers combined to produce new record loan originations in 2004," said Douglas G. Duncan, MBA chief economist and senior vice president of research and business development. "With commercial property values strong, interest rates low, the economy growing and real estate markets starting to improve, 2005 looks to produce more of the same."
The increase in commercial/multifamily lending activity during 2004 was across most property and investor types. Commercial mortgage bankers originated $50.4 billion of loans on multifamily properties, representing 37.3 percent of total originations, down from 41.6 percent in 2003. Office lending was the next most active property group, with $33.2 billion in originations or 24.5 percent of the total, followed by retail originations of $24.8 billion or 18.3 percent of the total. The largest percentage increase in commercial mortgage lending was for office properties, where the $33.2 billion in originations for 2004 represented a 27.7 percent increase from 2003 volumes.
"By any measure, our industry had a great year," said MBA Chair Michael Petrie. "We're flush with capital. We outperformed other asset classes, and weve earned a permanent place in institutional asset allocation models."
Despite the prospects for higher interest rates in 2005 and declines in sales from the record-shattering pace set in 2004, most industry experts are optimistic about the outlook for 2005.
"Going into 2005, we have a lot of momentum," said David Lereah. "Mortgage rates are low and sales should tail off a bit, which should take some pressure off inventories and increase the number of homes for sale."
Nearly half of small- and medium-size banks and thrifts expect to see an increase in single-family originations in 2005, compared to 2004, while only 21 percent expect a decline, according to America's Community Bankers "ACB 2005 Real Estate Lending Survey." Lenders were also optimistic about increases in dollar volume of home equity loans (68 percent), commercial real estate loans (60 percent), construction loans (54 percent) and multifamily loans (29 percent). The survey was compiled from responses by 553 community banks, broadly reflecting community banking. The questionnaire was mailed in the fourth quarter of 2004, requesting information as of Sept. 30. The margin of error was 4.25 percent. The survey included all ownership types, charters, asset sizes and regions of the country.
Fannie Mae economists expect house price appreciation to drop from 10 percent in 2004 to 3.5 percent this year and to remain within the range of 3-3.5 percent for the next few years. Believing that the record home sales of 2004 were fueled in part by investor purchases, these economists are forecasting a 22 percent decline in originations to $2.19 trillion for 2005. But this isnt necessarily bad news for homebuyers.
"This slowing in the rate of home-price appreciation will be welcome news for homebuyers, yet the market remains favorable for home sellers because housing inventory levels are tight," said Lereah. "The home price gains expected this year will remain above the high end for historic norms, which are one to two percentage points higher that the overall rate of inflation."