House-price gains are expected to slow this year compared to 2004, with some metropolitan areas seeing particular lulls and even decreases in price, economists said today during a 2005 housing industry forecast hosted by the National Association of Home Builders.
A projected rise in the Fed rate and mortgage interest rates were cited by some panelists as possible contributors to a slower housing market in 2005.
“House prices I’m pretty much convinced we will see a slowdown from what looks like outlandish rates of increase,” said David Seiders, chief economist for the association.
David Berson, chief economist for Fannie Mae, said he expects home prices increases to increase about 3.5 percent nationwide in 2005, compared with a 10.5 percent increase in 2004. “There will be some (metropolitan areas) where prices will go down. We will almost certainly see some decline in some areas.”
Housing markets where real estate investors have been very active, adjustable-rate mortgages have been very popular and housing-price increases have been most dramatic may be the most susceptible in 2005 to slowing rates of appreciation or a drop in home prices, Berson said.
Meanwhile, most markets in the U.S. will see home-price gains of about 4 percent to 4.5 percent, he said. “It still means there’s no national home-price bubble. Economics tells us that when demand falls, prices decline as well.”
Investors are expected to purchase fewer properties in 2005, which is expected to increase the supply of homes on the market, Berson also said. And consumers who bought homes with minimal or zero-percent financing over the past couple of years, which he referred to as “buying ahead behavior,” could also slow the housing market, with sales expected to drop about 7 percent or 8 percent compared with 2004, he said.
Seiders’ forecast was more optimistic, with a projection for a 3 percent drop in single-family home sales this year. He said 2005 won’t be dramatically different than 2004 – “coming out even or something like that would not be totally out of the question.” Seiders also projected a full percentage point increase in the long-term mortgage interest rate this year.
Refinancing activity was down about 30 percent in 2004 compared to 2003 levels, and that decline should continue in 2005, said Frank Nothaft, chief economist for Freddie Mac.
The cost of adjustable-rate mortgages relative to 30-year fixed mortgages should rise this year, which will likely lead to a slightly lower rate of consumers opting for adjustable-rate mortgages, he said.
Mortgage debt growth in the residential mortgage market has been very strong in the last couple of years, Nothaft also said, and “it is very unrealistic for anyone to be able to expect that the high level of home-price appreciation will be maintained going forward.”
Economists generally agreed that job and income growth should pick up. Jim Glassman, senior economist for JP Morgan Chase, said a reversal in the rising cost of oil should help to boost the economy. While corporate profits have been at very high levels, the growth in wages and salaries have been “fairly anemic,” and he said to expect some growth in wages and salaries in 2005.
Seiders projected that about 2 million new housing units will be produced in 2005, roughly on par with production in 2003 and 2004.
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