Saturday, December 18, 2004

Here's a look at what to expect from housing in the coming year

ABOUT REAL ESTATE: Here's a look at what to expect from housing in the coming year

BY DAVID MYERS, Detroit Free Fress

Dear David: How is the housing market expected to do next year? Will prices keep going up, or will they finally start to fall?

Dear Reader: Most experts say that home sales will stay strong and prices will keep rising in most parts of the nation in 2005, even though mortgage rates will likely increase a little bit, too. Readers always flood me with questions like yours in December, so I'll devote this entire column to providing my annual forecast for the year ahead.

Dear David: Why do you think home prices will go up? It seems like every time I turn on the television, there's someone talking about how the "housing bubble" is about to burst and saying that prices will fall.

Dear Reader: There are several reasons why home prices should keep rising in 2005. For starters, the national economy continues to improve slowly: As more jobs are created, more people can afford to buy their first home, and current owners become more confident about trading up into more expensive houses. The end result is an across-the-board increase in values, from the smallest of condos to the fanciest of mansions.

Other factors pointing to an increase in home values next year include the rising cost of land, which forces builders to charge more for their homes, and continued growth in the typical American's income.

It's a sure bet that all that "housing bubble" nonsense will continue in 2005. But it's worth noting that since the bubble theory was first launched about four years ago, nationwide home sales have set new records and prices have jumped more than 30 percent. All that bubble talk made for good headlines, but it hasn't come true.

Dear David: How much should prices rise next year?

Dear Reader: It depends on which economist you talk to and where you live. But prices across the United States are expected to increase an average of 5.3 percent in 2005, according to the National Association of Realtors, the trade group whose annual forecasts have proven to be remarkably accurate in the past decade or two.

If the trade group's forecast once again proves correct, the 5.3-percent gain would be nearly double the expected overall inflation rate. This year prices rose an even stronger 7 percent.

Preliminary figures suggest U.S. home sales hit a record 6.49 million this year. Realtor economists say next year's sale rate will dip 3.7 percent, to 6.25 million homes, but will be the second-best sales year in history.

Dear David: Which housing markets did best in 2004?

Dear Reader: Final statistics won't be available for another month or so, but a recent report from the realtors association indicates home prices in the West jumped an average of nearly 15 percent in the past year -- the biggest increase in the four regions of the country. Prices surged more than 20 percent in several Western markets, including much of California, Nevada and Hawaii.

Home values in the Northeast climbed nearly 11 percent this year, and the biggest gains occurred in Connecticut and parts of New Jersey and Rhode Island. Prices in the Midwest climbed about 5 percent, but Chicago and most other parts of Illinois posted more than 8-percent gains, and North Dakota, Minnesota and Wisconsin bested the region's average, too.

Prices in the South rose an average of about 6 percent, led by gains of more than 20 percent in Florida communities - such as Daytona Beach, Ft. Lauderdale, Ft. Myers, Miami and the West Palm Beach-Boca Raton area.

Dear David: Will interest rates increase next year?

Dear Reader: Probably, but not by much. Rates almost always rise when the economy improves because businesses and individual consumers start borrowing more, and that, in turn, allows banks to charge more for loans. The lending business, like most others, follows the basic law of supply and demand: the cost of borrowing goes up as loan demand rises, and vice versa.

A recent poll of the nation's top economists found most of those experts believe the interest rate on 30-year fixed mortgages will average about 6.5 percent in 2005 -- roughly one-half of a percentage point higher than today. A half-point increase would add about $28 a month to the cost of a $100,000 loan. That certainly wouldn't be enough to send home sales and prices into a downward spiral.


At 9:18 AM, Anonymous Anonymous said...

Dear David, have u not noticed, the consumer and the government r borrowed out. Please try again. tia


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