Home Sales to Soften With Firm Price Appreciation

April 12, 2005

WASHINGTON – Home sales are expected to soften to a better balance this year, with price gains slowing but remaining above historic norms, according to the National Association of Realtors®.

Sales of existing-homes, including single-family and condo, should ease 2.4 percent to a total of 6.62 million this year, second only to 6.78 million in 2004. New-home sales are forecast at 1.14 million in 2005, also the second highest, 5.0 percent less than the record of 1.20 million last year. Housing starts are expected to rise 1.4 percent to 1.98 million units in 2005, the highest level of housing construction since 1978.

David Lereah, NAR’s chief economist, said the supply of homes remains tight. “The simple fact is we still have more buyers than sellers in most of the country,” he said. “This supply-demand imbalance is continuing to put pressure on home prices, but we should get closer to equilibrium by the end of the year.”

The national median existing-home price for all housing types is seen to grow 6.3 percent in 2005 to $196,900. The median new-home price is projected to increase 5.6 percent this year to $232,800. In a balanced market, home prices typically rise at the rate of inflation, as measured by the Consumer Price Index, plus 1 to 2 percentage points.

With pressure from higher oil prices, Lereah forecasts the CPI to rise 3.0 percent this year. “Relative to inflation, home prices will continue to experience above average returns in 2005,” Lereah said.

He expects the 30-year fixed-rate mortgage to rise gradually to 6.8 percent in the fourth quarter; for all of 2005 the rate should average 6.3 percent.

NAR president Al Mansell, CEO of Coldwell Banker Residential Brokerage in Salt Lake City, said even with an expected rise, mortgage interest rates remain historically affordable. “Aside from the last two years, we have to go back to the mid-1960s to find an interest-rate environment as favorable as expected this year,” he said. “Combined with the expansion of mortgage instruments designed for first-time buyers, we have an open window for people seeking the American dream of homeownership.”

The U.S. gross domestic product is seen to grow 3.8 percent this year, while the unemployment rate is projected to average 5.1 percent.

Inflation-adjusted disposable personal income is forecast to rise 3.5 percent in 2005, while the consumer confidence index is expected to average 102 this year.

Source: The National Association of Realtors

Contact ALTA at 202-296-3671 or communications@alta.org.