Economic expansion will not be a double-edged sword for the housing industry, economic analysts agreed Wednesday during a National Association of Home Builders Construction Forecast Conference in Washington, D.C.

 

While they agreed that the economy is expanding solidly, with some job growth, the analysts also said that stronger levels of employment and personal income would create a good climate for housing in 2004-05, even with higher interest rates and some monetary tightening by the Federal Reserve, the NAHB announced.

 

NAHB economist David Seiders, experts from Standard & Poor’s, J.P. Morgan Chase, Fannie Mae, Harvard University, Economy.com and Crystal Ball Economics were among the featured presenters at the semiannual conference.

 

Per-capita income growth and gains in home ownership by minority households and lower-income groups will be among the drivers for continued strength in the housing sector, the NAHB reported.

 

Conference panelists noted that the Federal Reserve has contributed to housing growth by holding the federal funds rate at 1 percent, and the NAHB forecast projects that the Fed will raise the federal funds rate to 1.5 percent by year-end, and that the move toward monetary tightening will begin as soon as August or even June.

 

One panelist at the conference expressed some concerns about whether higher interest rates will burst a bubble in housing prices in some metropolitan areas, such as the northeast corridor, Florida and California, because of “abnormally high ratios of house prices to market rents,” NAHB reported. Other panelists suggested that rising income would keep the relative cost of home ownership within reach. And panelists also noted that housing inventory is thin in many areas, and this can sustain or drive up home prices.

 

In the long-term, the national home ownership rate is projected to continue to rise, and could top 70 percent by 2013, panelists said. Annual house-price appreciation will average about 5 percent nationally. Mortgage originations will average about $3 trillion per year, while residential mortgage debt will more than double by 2013, panelists said.

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