A set of encouraging economic readings as 1998 neared a close Ð including lower mortgage interest rates combined with strong existing home sales and single-family construction starts Ð suggests that 1999 will be another good year for the nation's economy and for the housing market, according to the most recent economic forecast from the National Association of Realtors.
While NAR announced Jan. 15 that it expects both existing home sales and housing starts to decline slightly in 1999, its forecast still anticipates a robust housing market, second only to 1998, a record-breaking year for home sales.
"The U.S. economy will continue to grow in 1999, but at a slower rate," said Dr. Fred Flick, NAR vice president of economic research, in a news release. "We expect that the slowing rate of growth will be met by continued reductions in interest rates, which will in turn boost housing affordability. Existing home sales and housing construction will drop, but remain at an exceptional pace. This year will be a very strong one for the housing market, it just won't be 1998."
Existing home sales are expected to total 4.48 million units in 1999, dropping 6 percent from 1998's record-high total of 4.78 million units, and new housing construction starts are expected to be down about 3 percent in 1999.
Following a slight increase at the end of 1998, mortgage interest rates are projected to begin falling again in 1999, with fixed-rate, 30-year mortgage rates of 6.5 percent predicted by the end of the year. Consumer confidence also is expected to remain strong in 1999.
"With inflation near zero, the Federal Reserve Board should face little temptation to raise interest rates this year," Flick said. "If economic growth slows from the current rate of about 3.7 percent to around 2 percent in 1999, we should see the Fed make some gradual cuts in interest rates, which, of course, would benefit home buyers."
According to NAR's economic outlook, the expected reductions in existing home sales, construction starts and home purchase applications do not indicate a severe downturn in the housing market; rather they reflect a shift in activity that is closer to that of 1997 than the levels of 1998.
With mortgage rates expected to decline and housing affordability expected to improve, the housing market basically should be steady this year.
The association's forecast is published monthly in Real Estate Outlook: Market Trends and Insights.
The January 1999 issue includes a farewell column from NAR consulting economist John A. Tuccillo, a feature called "Housing in the New Millennium" that identifies solid real estate markets for the future, and a research feature on the management functions and owner characteristics of profitable multifamily rental properties
The National Association of Realtors is the nation's largest professional association, representing more than 730,000 members involved in all aspects of the real estate industry.
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