In a call sponsored by the Homeownership Alliance, the nation’s top housing economists told financial analysts that the second half of this year will bring continued success for housing and home ownership in spite of higher interest rates.
The economists participating on the call represent the charter members of the Homeownership Alliance: the Independent Community Bankers of America, Freddie Mac, Fannie Mae, the National Association of Home Builders and the National Association of Realtors.
David Lereah, chief economist for the National Association of Realtors, explained that the rise in interest rates is an expected and necessary part of economic recovery. “The reason interest rates are slightly higher is that we are in a growing economy rather than dealing with inflationary pressures. This is good news because corporate profits are up 40 percent from two years ago, so companies are spending and jobs are being created,” he said. “In the housing markets, this is largely neutralizing the effects of modestly higher interest rates.”
Paul Merski, chief economist for Independent Community Bankers of America, agreed with Lereah’s optimism. “Bankers continue to report steady and solid loan business for home construction and sales,” he said. “The housing sector of our economy may well be on track for another record-setting year, which is not surprising given interest rates are still at very attractive levels for consumers.”
According to the National Association of Home Builders, although the year ahead may bring its ups and downs, the housing market will certainly hold out to see positive year-end results. “Home-building is likely to recede from the robust second-quarter pace as interest rates move upward, but records most likely will be posted in 2004 for single-family starts and sales of new homes,” said Dave Seiders, chief economist for NAHB. Seiders went on to point out that, although the apartment market is facing record-high rental vacancy rates (a counterpart to record-high home-ownership rates), a strong condo market is providing good support to multifamily housing production.
Although all the economists expressed positive expectations, some were more guarded in their optimism. According to David Berson, chief economist for Fannie Mae, while there is no danger of a national home-price decline, there are a few regions across the country where rapid home-price increases have pushed affordability down to lows not seen since the late-1980s. “There is an increasing risk of price declines in some of those areas, especially those in which job growth has been most anemic,” Berson said. “However, ongoing economic growth (the weaker-than-anticipated employment reports for June and July notwithstanding), mortgage rates back under 6 percent and near-record mortgage applications for purchases suggest that home sales will continue to be at, or near, record levels for a while. For all of 2004, new records for home sales will be easily reached. Home prices also continue to grow strongly – perhaps too strongly in some areas.”
Frank Nothaft, chief economist for Freddie Mac, said home equity lending will increase as refinance activity decreases. “Refinance volume has fallen dramatically and will remain a relatively small share of the mortgage market into 2005. Refinance represented about 50 percent of loan volume in the first half of this year, but has since fallen below 40 percent of new applications and should continue to slow through next year to a share around 30 to 35 percent,” he said. “Home equity lending will be up as that will be the preferred loan product to convert home equity into cash.”
The Homeownership Alliance, based in Washington, D.C., is a coalition of more than 15 organizations committed to ensuring support for the American housing system. Members include Consumer Federation of America, The Council of Insurance Agents & Brokers, The Enterprise Foundation, Fannie Mae, Freddie Mac, Habitat for Humanity International, Independent Community Bankers of America, Independent Insurance Agents & Brokers of America, Local Initiatives Support Corporation, National Association of Federal Credit Unions, National Association of Hispanic Real Estate Professionals, National Association of Home Builders, National Association of Mortgage Brokers, National Association of Real Estate Brokers, National Association of Realtors, World Floor Covering Association, National Bankers Association, National Council of La Raza, and National Urban League.
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