The housing market should stabilize by the end of the year if the Federal Reserve backs off on interest rate hikes, said the chief economist for the National Association of Home Builders Tuesday.
In his midyear forecast for NAHB, Chief Economist David Seiders said stabilizing mortgage rates — which have been climbing steadily in small increments and now stand at 6.79 percent — will stabilize the housing market. But he cautioned that the forecast is tied to the Fed and whether it decides to continuing raising rates.
“Things certainly could go wrong,” he said.
Seiders urged the Fed to take a pause on interest rate hikes, saying triggering further mortgage rate increases could shut out would-be buyers and continue to scare away investors. The Fed has raised the rate 17 times in a row in an attempt to temper inflation, but the consensus on Wall Street is they may pause soon. If the Fed does halt the hikes, the NAHB’s forecast — along with those of Freddie Mac and Fannie Mae — has the average 30-year fixed-rate mortgage leveling off at 6.8 percent by the end of the year. Fed Chairman Ben Bernanke and his team are scheduled to meet again on Aug. 8.
“My baseline forecast views this whole episode as a correction rather than a prelude to a recession or a housing bust,” Seiders said. “This is not a national house price decline.”
During the last five years, the housing market saw unprecedenteddouble digit property value appreciation. As mortgage rates have crept back up, appreciation has declined. Forecasters are now looking for appreciation in the single-digits over the next few years, which will lead to a slip in overall home sales.
The National Association of Realtors, which released its monthly home sales forecast Tuesday, also projected a dip in home sales on the way to a stabilized market.
“We should see home sales rise and fall month to month, but don’t look for any big shifts one way or the other” said David Lereah, NAR’s chief economist.
However, increased mortgage rates — even small ones — will affect the country’s more expensive housing markets, such as Washington and Baltimore.
“With D.C. being so high-priced, it is more sensitive to changes in interest rates,” said Lawrence Yun, an economist with NAR who focuses on the Washington region. “Every rise has a marginal impact. When some people are shopping for homes they are mentally locked in at one rate and if it goes up by a tenth of a point it changes their budget. It’s already expensive in D.C. and you’re asking them to stretch their budget by even more.”
Sales Forecasts for ’06
» Existing home sales are expected to decline 6.7 percent this year to 6.6 million nationwide, down from 7.08 million last year. Though a decline is forecast, the 2006 figure will still be the third highest on record.
» New home sales should fall about 12.8 percent this year to 1.12 million, down from 1.28 million in 2005.
» Housing starts are expected to decline 6.8 percent to 1.93 million this year from 2.07 million in 2005.
» The average 30-year fixed-rate mortgage should hit 7 percent this year, according to the National Association of Realtors’ forecast, a figure two-tenths higher than the National Association of Home Builders’ forecast.
Source: National Association of Realtors
