Saturday, November 06, 2004

Realtors say sales to lose some steam

Realtors say sales to lose some steam

But analysts stop short of forecasting bust in hot housing market

11:24 PM CST on Friday, November 5, 2004

By STEVE BROWN / The Dallas Morning News

ORLANDO – Don't look for another sharp increase in home sales next year.

The National Association of Realtors is calling for a 4 percent drop in pre-owned home sales after three years of increases.

"You just can't sustain record after record after record" for annual home sales, said David Lereah, the Realtors' chief economist. "I don't care that sales will go down next year because I think that will be healthy for our industry."

With home sales high and prices skyrocketing, some have worried that the housing market is overheated.

But just because 2005 won't set another record doesn't mean we're headed for a bust, economists say.

"I don't think we are coming to an end," Mr. Lereah said Friday at the Realtors' annual meeting in Orlando. "We are in the middle of a real estate boom.

"I think we can take this into the next decade if the economy and interest rates cooperate."

It would be hard to top 2004. Pre-owned home sales are expected to surpass 6.5 million units, an increase of more than 7 percent from 2003. U.S. median home prices have also been up about 7 percent this year.

Mr. Lereah said that rate of appreciation is unsustainable. He predicts that home prices will grow by only about 5 percent next year, and maybe less in 2006.

"My guess is we will see some air coming out of the balloon," he said.

Not all areas of the country are enjoying a bonanza in home price hikes.

While some West Coast and Southwestern markets are seeing prices rise by 30, 40 or 50 percent, there's very little or no appreciation in cities such as Austin, Dallas and Columbus, Ohio.

"You can't have a national housing bubble because housing is local," Mr. Lereah said. "Are there local housing bubbles? There could be."

Mr. Lereah said the "No. 1 enemy for the housing market" is the growing federal deficit and rising energy prices that could rob the economy and push interest rates higher.

He also fears that the Bush administration's tax overhaul plans might target the popular home interest rate deduction.

Most housing economists agree that housing will see some moderation in the year ahead.

"For the market to keep at the same pace or hit another record in 2005, we'd have to have a continuation of these really low mortgage rates with an expanding economy," said Frank Nothaft, chief economist with Freddie Mac. "It's hard to make that happen.

"We'll see a gradual slowing in housing demand," he said. "That doesn't mean the housing market is going to tank."

Both Mr. Nothaft and Mr. Lereah predict that mortgage rates will rise, but not by much.

"My projection right now is for 30-year mortgage rates to hover in that 6 to 7 percent range in the next 12 months," Mr. Lereah said. "I don't see it going outside that range."

Long-term home loan rates are below 6 percent.

"Interest rates will remain relatively low, and affordability will be high," said David Berson, chief economist with Fannie Mae.

Fannie Mae is still predicting that home sales will fall by between 5 percent and 7 percent next year.

But Mr. Berson noted that economists called for similar declines in 2003 and 2004.

"Year after year, we have assumed there would be declines," he said. "Things have gotten stronger instead of weaker.

"Maybe we will be wrong again."

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