Thursday, May 27, 2004

No Slowing Seen In Housing Boom

Steady Sales, Rising Prices Forecast

By Sandra Fleishman
Washington Post Staff Writer
Thursday, May 27, 2004; Page E04

The U.S. housing market shows no sign of a nationwide bubble and should remain strong for the next decade even if interest rates rise somewhat, according to an analysis from leading industry economists released yesterday.

There's no slowdown in sight for housing demand, according to the group of five economists who collaborated on the first 10-year projection offered by the Homeownership Alliance, a Washington-based association of 18 national housing organizations.

Instead, the report compiled by Fannie Mae, Freddie Mac, the Independent Community Bankers of America, the National Association of Home Builders and the National Association of Realtors offered the promise of a continuing boom driven by population growth, including immigration, and new jobs.

Among the 10-year predictions:

• Demand for new housing will remain steady at about 2 million units a year, with aging boomers, boomer babies and immigrants competing for places to live.

• The national homeownership rate will grow to as much as 72.4 percent from its 2003 record of more than 68 percent.

• Total home sales will average about 8.5 million per year, on par with recent record years.

• Home price increases should average 5 percent a year nationally through 2013, with price gains above 6 percent in areas where supply is tight, such as the Washington market.

"The American Dream is really alive and well, and over the next 10 years we see a very solid and bright future," said Paul Merski, chief economist for the Independent Community Bankers of America.

The rosy predictions came on the same day as a Commerce Department report that U.S. sales of new houses fell 11.8 percent in April, the biggest monthly drop in more than a decade. The government report raised some alarms yesterday that housing's golden glow over the past three years might be fading as mortgage rates climb and home prices soar.

But one of the economists who helped shape the 10-year alliance forecast downplayed the Commerce report, saying it offered a very limited picture of the market and reflected more that March's new-home sales numbers were boosted by good weather.

"The March bulge in home sales apparently was related to an unusual swing in weather conditions, and market fundamentals remain sound despite an increase in mortgage interest rates from their March lows," David F. Seiders, chief economist for the National Association of Home Builders, said in a press statement on the Commerce numbers. "We've been expecting sales to recede from the early-year pace, but we're forecasting an annual total of 1.113 million units, up about 2 percent from the record pace in 2003."

New-home sales in April dropped to a seasonally adjusted annualized rate of 1.093 million, from a record 1.239 million in March. Sales in the South, which includes the Washington area, declined the most, down 22 percent from March.

At the Homeownership Alliance conference, Seiders said there could be threats to the housing industry in the next 10 years if interest rates increase dramatically, a scenario he and his colleagues do not expect, or if Congress changes regulation of Fannie Mae and Freddie Mac, the two secondary mortgage market giants.

Seiders said interest rates were not factored into the alliance's 10-year forecast because "the most important factor [in housing growth] is population growth" and because the industry trusts that Federal Reserve Chairman Alan Greenspan "will be keeping the economy fairly close to potential growth and that the inflation side will not be allowed to go out of control."

The housing industry economists generally expect interest rates to stay below 7 percent this year and not reach 7.5 percent until 2006.

If rates were to move much higher, that could affect the decisions of people to buy or rent, but the overall demand for housing would not be affected, said David W. Berson, Fannie Mae's chief economist.

David A. Lereah, chief economist for the National Association of Realtors, said 36 metropolitan markets, including the Washington area, showed double-digit home price appreciation in the last quarter because of low inventory and high demand. Prices will not drop, said Lereah, unless "you have more supply than demand" and "a local concentrated loss of jobs."


At 12:48 PM, Anonymous Anonymous said...

People should step away from the banks and keep some of their valuables secure in a an Office Safe or Sentry Safe


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