The latest annual forecast by the National Association of Realtors calls for an even stronger record year for housing than earlier predicted.

Existing-home sales are expected to reach 6.97 million this year, a 2.8 percent gain over last year’s record mark of 6.78 million. That’s an improvement over last month’s projection, which called for 6.89 million existing-home sales this year.

New-home sales are expected to increase 3.2 percent to 1.24 million in 2005, also a record, the association announced today. Total housing starts – single-family and multifamily – are forecast to grow by 5 percent to 2.05 million units, the second highest on record; the peak was 2.36 million in 1972.

This year is expected to be a record for single-family construction, with 1.68 million homes started.

David Lereah, NAR’s chief economist, said that in each month of 2005 the forecast has been looking stronger than in previous projections. “Earlier this year, we expected 2005 home sales to be the second-highest on record, but monthly sales have been at or close to record levels. Although we should come off of sales peaks in the months ahead, mortgage interest rates have remained lower than expected, and job gains are providing additional stimulus, meaning unprecedented sales totals this year.

“The most notable problem in the housing market is the shortage of homes available for sale, as well as some shortages of building materials,” he added. “These shortages are proving to be a challenge for home buyers, builders and remodelers, and are continuing to put pressure on home prices.”

Lereah said he expects the national median existing-home price for all housing types to rise 9.4 percent this year to $202,600, with the typical new-home price increasing 5.8 percent to $233,900.

NAR President Al Mansell, of Salt Lake City, said, “We have to go back to the mid-1960s to see a period of comparably low mortgage interest rates. A big difference now is a decline in mortgage origination costs, plus a mushrooming in the availability of low- and no-down-payment loans. These are particularly helpful to first-time buyers in high-cost markets, but buyers need to shop loans and be aware of long-term consequences, and they may need to stay in their home longer to build enough equity to trade-up to a larger home in the future.”

The association expects the 30-year fixed mortgage rate to rise to 6.1 percent in the fourth quarter, reaching 6.5 percent by the end of 2006. According to Freddie Mac, the 30-year fixed rate currently stands at 5.62 percent.

The U.S. gross domestic product is forecast to grow 3.6 percent in 2005, with the unemployment rate averaging 5.1 percent. Inflation is expected to stay modest, with the Consumer Price Index rising 3.1 percent in 2005.

Inflation-adjusted disposable personal income should grow 3.2 percent this year, while the consumer confidence index is forecast to average 104, the association also projects.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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