As we prepare for 2005, we find a housing market that is no longer a national boom, but instead a mix of regional booms, slowdowns and mostly “status quos.” Nationally, the outlook is for slowly rising mortgage rates and slowly improving job growth. If both occur, the change in housing construction levels should be minimal in 2005. The Likely Scenario is for the U.S. economy to move along the red arrow below.

Demand: Job growth is slowly increasing in most markets around the country, with the most noticeable improvements in the markets that were hit hardest by the technology downturn in 2000. Population growth is likely to be greater in the more affordable markets where jobs are also plentiful. While we will continue tracking these statistics for all of the markets in the country, your best local barometer for housing demand is probably the number of cars on the road during rush hour. If you are looking for the best submarkets, find out where the office and industrial building construction is occurring and seek great neighborhoods near these emerging job centers.

Supply: Some markets such as Houston and Dallas should see supply decline, while supply in other markets such as Phoenix should continue to grow since builders are finding buyers for all of the 55,000-plus homes that are being built every year. Many of the coastal markets are building half as many homes as they built during the 1980s, so you can be sure that at least a large portion of the price appreciation in those markets is permanent.

Affordability: Thanks to low mortgage rates, affordability is still excellent in most markets around the country. While we can make a very strong case that some of the coastal markets are overpriced, the typical cycle of poor affordability leading to job and population losses is not occurring. Job and population growth are solid and improving in some of the supposedly most “overpriced” markets in the country. If the job growth continues, these markets should continue to prosper.

John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis.

***

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