Housing Market to Post Near-Record Levels in 2005

February 9, 2005

Home sales will be down from the high-water marks set in 2004 but are expected see the second-best year on record in 2005, according to the National Association of Realtors®.

Existing-home sales are forecast to decline 2.0 percent to a total of 6.54 million* in 2005 from a record 6.68 million last year. New-home sales are projected at 1.11 million this year, down 6.2 percent from a record 1.18 million in 2004. Housing starts are seen at 1.92 million units this year, a decline of 1.8 percent from 1.95 million 2004, which was the highest level of housing construction since 1978.

David Lereah, NAR's chief economist, said economic conditions this year will be similar to 2004. "Even with a growing economy and improving job market, inflation should stay tame with only modest upward pressure on interest rates," he said. "The relationship between mortgage interest rates, family income and home prices will remain favorable for home buyers in most of the country."

Lereah forecasts the 30-year fixed-rate mortgage to rise modestly to 6.3 percent by the end of the year, and average 6.0 for all of 2005 compared with an average rate of 5.8 percent in 2004.

The national median existing-home price should increase 5.0 percent in 2005, with the annual price expected at $193,300. The median new-home price is forecast to rise 6.0 percent in 2005 to $232,100. By contrast, appreciation rates in 2004 were 8.3 percent for existing homes and 12.3 percent for new homes.

"This slowing in the rate of home-price appreciation will be welcome news for home buyers, yet the market remains favorable for home sellers because housing inventory levels are tight," Lereah said. "The home price gains expected this year will remain above the high end for historic norms, which are 1 to 2 percentage points higher that the overall rate of inflation."

Inflation will remain modest with the Consumer Price Index rising 2.5 percent this year. The U.S. gross domestic product is projected to grow by 3.9 percent in 2005, while the unemployment rate is forecast to decline to 5.0 percent by the third quarter. Inflation-adjusted disposable personal income is seen to grow 3.9 percent this year, while the consumer confidence index should rise to 105 by the end of the year.

Source: The National Association of Realtors

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