Home Sales to Benefit From Slower Mortgage Interes

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Home Sales to Benefit From Slower Mortgage Interes
Washington, DC, May 10--Mortgage interest rates have been trending up less than expected, a pattern that should continue through next year and support strong levels of home sales. The forecast was released at the start of the National Association of Realtors Midyear Legislative Meetings & Trade Expo; a record of more than 8,500 Realtors and guests are expected to attend the May 9-14 meetings here. David Lereah, NAR’s chief economist, said higher oil prices are having a dampening effect on economic growth. "A side benefit is that mortgage interest rates will be rising less than expected," he said. "The essentially sideways movement in mortgage interest rates recently has defied the consensus of earlier forecasts, with only a modest uptrend detectable over time. The simple effect, in an economy with an improved labor market, is a higher demand for homes." Lereah projects the 30-year fixed-rate mortgage to rise gradually to 6.4 percent in the fourth quarter, then average about 6.8 percent in 2006. "In other words, mortgage costs should remain historically low for the foreseeable future," he said. Sales of existing-homes, including single-family and condo, will be close to last year’s record, slipping only 1.2 percent to a total of 6.70 million in 2005. A similar pattern is expected for new-home sales – a decline of 2.5 percent to 1.17 million this year, which also would be the second highest on record. Housing starts are seen to increase 0.7 percent to 1.97 million units in 2005, the best performance since 1978. The national median existing-home price for all housing types is forecast to rise 7.1 percent this year to $198,400. The median new-home price is expected to increase 5.1 percent in 2005 to $232,300. The U.S. gross domestic product is projected to grow 3.3 percent in 2005, while the unemployment rate is expected to average 5.3 percent. Inflation should be tame with the Consumer Price Index rising 2.9 percent in 2005. Inflation-adjusted disposable personal income is forecast to rise 3.5 percent this year, while the consumer confidence index is expected to rise to 101 in the fourth quarter.