Commercial PropertyHalfway Point: Home Sales Will Still Reach Near Record Levels
Despite rising mortgage interest rates and many economists and pundits predicting a turndown in the economy, two leading organizations say housing sales are still on track to end the year near previous records.
It"s the halfway point, and outlooks are positive say the National Association of Realtors and Freddie Mac.
David Lereah, NAR"s chief economist, says he thinks the housing market is showing signs of stabilizing. "The major housing indicators have been moving up and down within a reasonable range, which means the market should even-out just below present levels," he said in a prepared statement. "At the same time, housing inventory levels are balanced in much of the country, so overall price appreciation will be at a normal rate. We should see home sales rise and fall month to month, but don"t look for any big shifts one way or the other."
While the NAR expects existing-home sales to decline 6.7 percent to 6.60 million in 2006 from 7.08 million last year, that would still be the third highest level on record, which was achieved only three years ago in 2003. The NAR says new home sales should fall 12.8 percent this year to 1.12 million from 1.28 million in 2005. Housing starts are forecast to decline 6.8 percent to 1.93 million this year from 2.07 million in 2005.
Among the reasons for the expected drop in sales -- the 30-year fixed-rate mortgage is likely to reach 7.0 percent by the end of the year, says NAR. "The uptick in interest rates has been slowing home sales," Lereah said. "We remain concerned about the potential impact of higher interest rates in some of the more expensive areas of the country."
NAR President Thomas M. Stevens suggests that consumers should feel more confident about the market normalization. "Home sellers in most areas understand that the period of abnormal price growth is over," says Stevens, "and they have become more realistic about the current market. This is helping to ease the pressure on home prices in some areas."
In addition, inflation is unlikely to be brought under control as long as high demand remains for oil. Despite record high prices, Americans in June used more oil than ever before. However, the Consumer Price Index, which measures inflation, is forecast to grow at a relatively mild 3.4 percent.
Typically, home prices beat inflation by one or two percentage points and this year should prove to be no exception. The NAR predicts home prices to rise 5.3 percent nationally to $231,300 in 2006.
Mortgage finance company Freddie Mac says its concurs that 2006 will be the third strongest year housing sales.
"Though the direction of housing activity is unambiguously heading cooler, we remain confident that the climate is still temperate, and that 2006 will finish as the third strongest year ever for the national housing market," says Freddie Mac"s monthly outlook.
Freddie Mac says it expects 30-year fixed rate mortgage rates to average 6.8 percent for the remainder of 2006 and that consumer prices will rise 3.1 percent before softening to 2.5 percent in 2007.
With the Federal Reserve"s recent action in raising short term interest rates, the rate at which banks borrow money, for the 17th straight period, many economists and pundits feel the economy will slow accordingly and inflation pressures will subside. In addition, it"s expected that the economy is strong enough to generate 1.6 to 1.8 million jobs in 2006.