Existing-home sales are projected to drop 6.8 percent this year to 6.6 million, down from a record 7.08 million in 2005, according to the latest National Association of Realtors forecast.
That is down slightly from the group’s previous forecast for the year, which called for a 6.4 percent drop in existing-home sales this year.
The association has also lowered its expectations for new-home sales, which are forecast to fall 13.4 percent this year to 1.11 million from a record 1.28 million in 2005. In May, the association had projected that annual new-home sales would drop 11.6 percent for the year.
Housing starts are likely to decline 6.2 percent to 1.94 million in 2006 compared with 2.07 million last year.
The 30-year fixed-rate mortgage should average 6.9 percent during the second half of the year, and the unemployment rate is expected to average 4.8 percent in 2006.
The national median existing-home price for all housing types is forecast to rise 5.3 percent this year to $231,300. With more construction in 2006 taking place in lower cost housing markets, the median new-home price is projected to increase 0.8 percent to $242,900.
In its previous forecast for 2006, the association projected that the median existing-home price would rise 5.7 percent this year while the new-home price would rise 2.2 percent.
Inflation, as measured by the Consumer Price Index, is seen at 3.1 percent in 2006, compared with 3.4 percent last year. Growth in the U.S. gross domestic product is likely to be 3.4 percent this year. Inflation-adjusted disposable personal income should grow 3.1 percent this year.
David Lereah, NAR’s chief economist, said in a statement, “Now the housing market has cooled, but 2006 is still expected to be the third strongest on record. In this case, experiencing a slowing from a hot market is a good thing … slower appreciation will help to preserve long-term affordability.”
Historically, home prices rise 1.5 to 2 percentage points faster than the rate of inflation, Lereah said.
He called upon the Federal Reserve Board to halt further hikes in the federal funds rate to protect some markets. “This is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable.”
Thomas M. Stevens, NAR president and senior vice president of NRT Inc., said in a statement, “Broadly speaking, rising inventories have taken the pressure off of unsustainable home-price growth. For most of the nation, this means future home-price gains will be much closer to the normal returns we expect from housing.”
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