Realtors predict home sales to remain relatively strong

Predictions show that a fixed rate around 8.5 percent may boost variable rate mortgages

Home sales are expected to remain relatively strong in 2000, despite recent increases in mortgage interest rates, according to a Jan. 18 press release from the National Association of Realtors.

Dr. James F. Smith, NAR's chief economist, said Wall Street concerns about inflation are exerting pressure on long-term interest rates.

"If the 10-year Treasury rates stay anywhere near where they've been, fixed mortgage rates are headed for 8.5 percent and that'll mean adjustable rate mortgages will become even more popular," he said in the release.

NAR expects 30-year fixed-rate mortgages to settle at around 8 percent later in the year, once inflation fears settle.

"Since interest rates are still fairly affordable, the recent uptick will only slightly dampen home sales," Smith added.

According to the association's latest "Real Estate Outlook" publication, economic growth, as measured by the gross domestic product, is expected to average 3.1 percent in 2000.

"Housing markets will be down somewhat this year and will no longer be contributing to economic growth; however, they remain a significant contributor to the underlying strength of the overall economy," Smith said.

After setting new records over four consecutive years, existing-home sales are expected to slide 5.6 percent to 4.89 million units in 2000.

Even so, this would be the third best year on record.

"The market is due for a breather the 5.18 million existing-home sales record we saw in 1999 is astounding, and any sales level remotely close to the 5 million mark is extremely strong in historic terms," Smith said.

Also featured in the January "Real Estate Outlook" are results from NAR's monthly market conditions survey. The survey, which is sent to a regular panel of real estate professionals, shows that NAR members believe the market for single-family homes peaked last spring.

However, survey participants believe the current residential market is a seller's market, with the number of buyers surpassing sellers.

"Low housing inventories support this perception," Smith said.

Given the record sales levels of both new and existing homes in 1999, and low inventories of the available housing stock, builders are having difficulty keeping up with demand in many areas, Smith noted.

NAR projects total housing starts to drop 5.6 percent in 2000 to 1.58 million units.

"New-home sales should drop 5.2 percent this year to 845,000 units, partially due to the lead time needed to start new housing projects," he said.

NAR projects the median existing-home price to rise 2.1 percent in 2000 to $135,800; however, new-home prices are expected to rise 5.6 percent to a median of $167,300. "A trend toward larger homes, coupled with rising prices resulting from material shortages, is putting more pressure on new-home prices," Smith said.

Consumer price inflation is expected to hover around 1.8 percent this year, while NAR expects the unemployment rate to average 4.1 percent. Disposable personal income is projected to rise 3.6 percent in 2000.

The National Association of Realtors, "The Voice for Real Estate," represents nearly 750,000 members involved in all aspects of the real estate industry.