Home sales are expected to set a new record this year, but rising interest rates should put a damper on sales in 2006, the National Association of Realtors reported today in its latest housing and economic forecast.

Median existing-home prices are expected to increase 12.5 percent this year to $208,400 while sales grow 4.2 percent, the association reported. “The forecast for home sales has trended up as the year progressed, fueled lately by added demand resulting from the impact of recent hurricanes.”

David Lereah, the association’s chief economist, said by June it was apparent that homes sales would likely set a new record. “Post-Katrina, our sales projections for this year have moved even higher,” Lereah said. “Short-term momentum is very strong, and our Pending Home Sales Index just set a record. In addition to the housing needs of hurricane victims, we may be seeing some ‘fence-jumping’ from home buyers who are getting into the market before interests rates move higher.”

New-home sales are expected to increase 7.1 percent to 1.29 million, and median new-home prices should rise 3.9 percent to $229,700, the association reported.

Total housing starts – single-family and multifamily – should be up 4.5 percent to 2.04 million units this year – the best showing since 1973 – and single-family starts are expected to set a record of 1.7 million.

“Inflationary pressures – driven by higher energy costs – have become a concern, so we anticipate two more hikes in the fed funds rate by the end of the year. In addition, long-term interest rates also are rising at a faster clip,” Lereah said. The 30-year fixed-rate mortgage is projected to reach 6.2 percent in the fourth quarter, and trend up to 6.7 percent by the end of next year.

Al Mansell, association president, said some easing in home sales is expected in 2006. “The rise in mortgage interest rates is likely to have a slight breaking action on the housing market, and the upside of that is it would help to bring the market closer to balance between home buyers and sellers,” he said. “As a result, there should be a cooling in the rate of price growth – on balance, the overall market should continue to favor sellers with price appreciation remaining above the high end of historic norms. The investment fundamentals for housing remain solid.”

In 2006, NAR expects the median existing-home price to grow by 5.2 percent and the median new-home price to rise 7.1 percent. Historic home-price gains are 1.5 percentage points above the rate of inflation, which is seen at 2.6 percent next year.

“Although energy prices are the chief culprit in current inflation concerns, we project oil prices to settle early next year – that would cause inflation to quickly dissipate,” Lereah said. The Consumer Price Index is forecast to rise 3.5 percent for all of 2005 before easing early next year.

Inflation-adjusted disposable personal income is expected to grow by 1.4 percent for 2005. The U.S. gross domestic product (GDP) is seen at 3.5 percent for all of 2005, with GDP picking up early next year as hurricane rebuilding accelerates. The unemployment rate is projected to average 5.2 percent for the next three quarters, then decline to 5 percent in the second half of next year.


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

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription