Top Housing Industry Economists Expect Housing and Homeownership to Remain Strong in 2005

January 25, 2005

WASHINGTON, DC—The nation’s top housing and mortgage finance economists told financial analysts that conditions will remain favorable for homebuyers in 2005 during a biannual call sponsored by the Homeownership Alliance. The economists expect 2005 to be another strong year for housing, but said the nation “can expect a bit of a breather” as a fifth consecutive record-breaking year is unlikely.

The economists participating on the call represent Homeownership Alliance charter members, including the Independent Community Bankers of America, Freddie Mac, Fannie Mae and the National Association of Home Builders. National Association of Home Builders chief economist David Seiders summed up 2004 with a look toward 2005. “Basically, we ended 2004 in good shape as we exceeded expectations and wound up with records for new and existing home sales. While not as fast paced as 2004, this will be another good year for overall economic growth. This will be a year of some caution for the home building community. However, the levels will still be huge, and home builders are headed into 2005 with very good attitudes,” said Seiders.

David Berson, Fannie Mae chief economist, explained, “We expect another very strong year for housing in 2005, with above-trend economic growth and still-low mortgage rates, but a fifth consecutive record is unlikely. A combination of ‘buying ahead’ behavior in the past couple of years and a slowdown in the rapid pace of investor demand should reduce home sales by roughly 7.5 percent this year. Moreover, the unsustainably rapid rate of home price appreciation should slow as well—with gains nationally averaging around 3.5 percent.”

Paul Merski, chief economist for the Independent Community Bankers of America’s chief economist sees a steady flow of home purchases in 2005. “Despite modestly rising interest rates, the solid economic, employment and income growth in the months ahead will keep the demand for homes and mortgage finance at a solid pace, but distinct from the extraordinary red-hot housing market witnessed during the last few years. Moderation in home price appreciation, combined with the borrowing rates that are still historically very attractive, will afford a steady flow of home purchases.”

Mortgage rates are expected to move up gradually over 2005, noted Frank Nothaft, chief economist for Freddie Mac. “The Fed will continue its plan to gradually reduce its accommodative monetary policy by nudging up the federal funds target in quarter-point increments, timed with Federal Open Market Committee (FOMC) meetings. The FOMC is likely to set the rate at 2.5 percent at its next meeting, February 1-2. We expect long-term yields, such as on 30-year fixed-rate mortgages, to also move up by about 0.5 percentage points over 2005,” Nothaft commented. “The ARM share will drift lower over 2005 with the flatter yield curve but should still account for about 1-in-3 home purchase loans during the year. The 5/1 hybrid will continue to dominate ARM lending this year.”

Source: Homeownership Alliance

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