Continued strong home sales expected

Realtors association, Freddie Mac raise forecasts for this year

October 12, 2003|By Kathleen M. Howley | Kathleen M. Howley,BLOOMBERG NEWS

More people have bought houses during the past two years than at any other time in history, and two industry groups said last week that they expect similar strength to continue for the rest of this year.

Last week, Freddie Mac, the second-largest U.S. mortgage buyer, and the National Association of Realtors raised their forecasts for home sales this year after mortgage rates retreated from a one-year high.

Freddie Mac said it expects 7.15 million new and existing homes to be sold, more than last month's forecast of 6.76 million, chief economist Frank Nothaft said in a speech at the National Press Club in Washington.

The Realtors group forecast 6.94 million sales, up from a previous prediction of 6.79 million. A record 6.54 million homes were sold last year.

Mortgage rates rose more than 1 percentage point after plunging to a 45-year low in June, then retreated last month for four consecutive weeks. Lower borrowing costs make it possible for more people to buy homes, fueling consumer spending as the new owners purchase furniture, appliances and the like, said David A. Lereah, chief economist at the National Association of Realtors.

"The spike was short-lived," Lereah said. "Mortgage rates came right back down again, and that's driving sales once again."

Sales in Maryland also are on pace to break a record this year, according to the Greater Baltimore Board of Realtors.

The average rate for a 30-year fixed mortgage was 5.95 percent last week, down from a high of 6.44 percent during the week that ended Sept. 5. The rate fell to 5.21 percent in June, thought to be the lowest since the Eisenhower administration.

Every decline of 1 percentage point in mortgage rates means an additional 250,000 people will buy a home, Lereah said.

The 30-year rate probably will average 5.9 percent this year and 6.7 percent next year, Lereah said. Next year's sales of new and existing homes are expected to total 6.42 million, which would be the third-best on record, Lereah said.

Mortgage volume probably will reach $3.3 trillion this year, said Nothaft, who had forecast $3.2 trillion a month ago. Last year, a record $2.7 million was lent. Next year's mortgage volume probably will total $1.9 trillion, up from September's forecast of $1.7 trillion, he said. The decline is expected because of a slowdown in refinancing.

"Rates are almost half a point lower than where they were a month ago, and as a consequence we've added more origination activity into 2004," Nothaft said.

Prices are likely to rise 5 percent this year and next year, Nothaft said. Last year, prices rose 7 percent. The 20-year average annual appreciation is 4 percent, the Realtors said.

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