Strength in housing depends on labor market improvements

With mortgage interest rates remaining historically low, continued strength in the housing market will depend more on improvement in the labor markets, according to the National Association of Realtors.

According to David Lereah, NAR's chief economist, the 30-year fixed-rate mortgage will move modestly higher this year.

"Fixed rate loans currently are around 5.7 percent, but we project a gradual rise to 6.5 percent in the fourth quarter," he said in a Feb. 9 news release. "As interest rates move up, the strength of the housing market will depend largely on job growth which we expect to accelerate and drive demand for homes as the year progresses."

Lereah said the unemployment rate should decline to 5.5 percent by the fourth quarter.

"The economy is solid, and job gains in the second quarter should lead to increased spending in the second half of the year," he said.

Growth in the U.S. gross domestic product is forecast at 4.6 percent this year.

"Business spending is accelerating and record profits will help to stimulate additional activity," Lereah said. "The GDP also will benefit from rising exports in the second half of the year."

Existing homes

Existing-home sales are expected to total 5.89 million in 2004, second only to 6.1 million last year. New homes also should have their second best year with 1.03 million sales.

Housing starts are projected at 1.78 million units this year, down from a 25-year peak of 1.85 million in 2003.

The national median existing-home price should rise 4.9 percent to $178,200 this year, following a 7.5 percent increase in 2003. The median new-home price is expected to grow by 4.4 percent in 2004 to $201,800.

Inflation

Inflation is likely to be very low this year with the consumer price index increasing only 1.3 percent. Inflation-adjusted disposable personal income should rise by 3.9 percent in 2004, while the consumer confidence index is seen to rise to 100 by the fourth quarter.