NAR predicts drop in home sales

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The federal budget surplus and technology-induced productivity gains are providing a favorable backdrop for economic growth while reducing inflationary fears, according to the latest "Real Estate Outlook" publication of the National Association of Realtors. |ret||ret||tab|

Dr. David Lereah, NAR's chief economist, said in a release that the Federal Reserve's objective to orchestrate a soft landing for the economy appears to be working. |ret||ret||tab|

"Most sectors of the economy are showing signs of weakening, particularly the interest-sensitive housing sector. Overall, the three major measures housing starts, existing home sales and new home sales are down about 5 percent from their peak in 1999," he said. |ret||ret||tab|

Lereah predicted that these indicators would discourage the Fed from any further interest rate adjustments, a prediction confirmed by the Fed's Aug. 22 announcement that it would keep its target for the federal funds rate at 6.5 percent.|ret||ret||tab|

The association expects existing-home sales to drop 7.7 percent this year to a total of 4.8 million units, still the third highest number on record. New-home sales are forecast to drop 5.3 percent in 2000 to 859,000 units, while housing starts should decline 4.6 percent this year, with total construction projected at 1.6 million units. |ret||ret||tab|

"Our projections for the housing indicators have been revised upward in the last month, given the more favorable combination of economic factors," Lereah said. |ret||ret||tab|

NAR forecasts the national median existing-home price to be $135,500 in 2000, an increase of only 1.9 percent from last year, while the typical new home price should be $166,100, up 4.2 percent over 1999. Lereah said fixed-rate mortgages, which have been moderating recently, may decline further. |ret||ret||tab|

"With strong productivity growth, lender optimism and no further actions by the Federal Reserve, the 30-year fixed-rate mortgage could dip below 8 percent by the end of the year," Lereah said.|ret||ret||tab|

NAR expects U.S. economic growth, as measured by the Gross Domestic Product, to slow to a 3.5 percent growth rate by the end of the year, while consumer price inflation should slow to 3.2 percent during the fourth quarter. |ret||ret||tab|

The association forecasts the unemployment rate to average 4.1 percent for the year, while disposable personal income should decline to a growth rate of 2.8 percent during the second half of the year.|ret||ret||tab|

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