Forecast for 2005 home sales better than 2004

David Lereah, NAR’s chief economist, said in an Oct. 12 news release that at the beginning of the year it was thought that 2005 would be the second best total for both existing- and new-home sales, but by June it was apparent that another record was in the works.

“Post-Katrina, our sales projections for this year have moved even higher,” Lereah said. “Short-term momentum is very strong, and our Pending Home Sales Index just set a record. In addition to the housing needs of hurricane victims, we may be seeing some ‘fence jumping’ from home buyers who are getting into the market before interests rates move higher.”

Existing-home sales are forecast to rise 4.2 percent to 7.07 million in 2005, while new-home sales are expected to increase 7.1 percent to 1.29 million. Total housing starts – single-family and multifamily – should be up 4.5 percent to 2.04 million units this year, the best showing since 1973, and single-family starts are expected to set a record at 1.7 million.

“Inflationary pressures – driven by higher energy costs – have become a concern, so we anticipate two more hikes in the fed funds rate by the end of the year,” Lereah said. “In addition, long-term interest rates also are rising at a faster clip.”

The 30-year fixed-rate mortgage is projected to reach 6.2 percent in the fourth quarter and trend up to 6.7 percent by the end of next year.

The national median existing-home price for all housing types is forecast to increase 12.5 percent in 2005 to $208,400, while the median new-home price should rise 3.9 percent to $229,700.

NAR President Al Mansell said some easing in home sales is expected in 2006. “The rise in mortgage interest rates is likely to have a slight braking action on the housing market, and the upside of that is it would help to bring the market closer to balance between home buyers and sellers,” he said. “As a result, there should be a cooling in the rate of price growth – on balance, the overall market should continue to favor sellers with price appreciation remaining above the high end of historic norms. The investment fundamentals for housing remain solid.”

In 2006, NAR expects the median existing-home price to grow by 5.2 percent and the median new-home price to rise 7.1 percent.

Historic home-price gains are 1.5 percentage points above the rate of inflation, which is seen at 2.6 percent next year.

“Although energy prices are the chief culprit in current inflation concerns, we project oil prices to settle early next year – that would cause inflation to quickly dissipate,” Lereah said. The Consumer Price Index is expected to rise 3.5 percent for all of 2005 before easing early next year.

Inflation-adjusted disposable personal income is expected to grow by 1.4 percent for 2005. The U.S. gross domestic product is seen at 3.5 percent for all of 2005, with GDP picking up early next year as hurricane rebuilding accelerates. The unemployment rate is projected to average 5.2 percent for the next three quarters, and then decline to 5 percent in the second half of next year.

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