Posted on: Friday, June 10, 2005

Home sales expected to top 8 million in '05

Bloomberg News Service

WASHINGTON — U.S. home sales are expected to top 8 million this year, the fifth consecutive record, as falling mortgage rates bolster demand, according to a forecast by the National Association of Realtors.

"The housing market just refuses to stop," Lawrence Yun, an economist at Washington-based NAR, the industry's largest trade group, said.

Sales of existing single-family houses, condominiums and cooperatively owned apartments will rise 1.6 percent to 6.89 million from 6.78 million last year, NAR's monthly report showed. New-home sales will climb 3.2 percent to 1.24 million from 1.2 million, said the group, which has more than 1 million members.

The Realtors association is the only major housing forecaster calling for record sales. Its projection counters speculation of a "bubble" in some regions including Nevada, California and Florida in which a drop in demand would lead to declining prices.

Long-term borrowing costs have fallen even as the Federal Reserve increases interest rates to contain inflation. Fed policymakers have boosted the benchmark overnight lending rate eight times in the past year on signs of stronger manufacturing and job growth.

"We've been anticipating an increase in mortgage rates as the economy improves and the Fed takes action," Frank Nothaft, chief economist of Freddie Mac, the No. 2 U.S. mortgage lender, said in an interview. "Instead, we've seen lower mortgage rates."

The average rate for a 30-year fixed home loan has fallen in nine of the past 10 weeks, according to Freddie Mac. The rate this week was 5.56 percent, down from 5.62 percent last week, and below below 2004's 5.8 percent average. For the year, the rate probably will average 6.1 percent, NAR said in its report.

As rates are declining, the median price for an existing home probably will rise 8.8 percent to $201,500 from 2004, the first time it's risen above $200,000, according to the NAR report. Prices climbed 9.3 percent last year from 2003.

Federal Reserve governors, the Comptroller of the Currency and three other regulators expressed concern in a May 16 letter that easier credit standards and greater use of interest-only loans are fueling home price speculation.

Investors' share of home purchases rose to 12 percent in the first quarter, the highest on record, David Berson, chief economist of Fannie Mae, said in an interview.

"There's no sign that investor demand has softened at all," said Berson, 50. "The things that would have caused a slower housing market, such as higher mortgage rates, simply aren't present, and we're now almost halfway through the year."