No skid in home sales foreseen

Expert group is looking for a healthy decade

More households, higher prices

Foreign-born buyers expected to drive market

May 30, 2004|By Shruti Mathur | Shruti Mathur,SUN STAFF

Home sales will remain healthy during the next decade even though mortgage rates likely have bottomed out, according to a report released last week by a national housing group.

Top economists from the real estate industry outlined several reasons for the strength, saying about 2 million new houses, apartments and condominiums will need to be built nationally each year to meet the growing demand. The panel said foreign-born homeowners will drive much of the market during the next decade, and the group forecast that home prices will keep rising, though not at the current pace.

The report predicts that the number of households, a key indicator of housing demand, will grow by at least 1.32 million a year for the next 10 years as the population expands. That pace is 12 percent higher than the U.S. Census Bureau estimate of 1.16 million a year used as a benchmark by many economists.

Home sales have posted records during each of the past three years thanks to extraordinarily low mortgage rates and strong price appreciation. Since mortgage rates are expected to climb higher during the coming years, several economists worry that housing may lose its sizzle as a prime driver of the economy. But the report, sponsored by the Washington-based Homeownership Alliance with information supplied by builders, Realtors and bankers, says housing demand is not likely to wane.

The forecasters included top economists at mortgage giants Freddie Mac and Fannie Mae, the National Association of Realtors, the Independent Community Bankers of America and the National Association of Home Builders.

Acknowledging the report projected a "bullish" forecast, David Lereah, chief economist for the National Association of Realtors, said that as long as the national economy is strong and mortgage rates are in the single digits, housing should remain healthy.

Benchmark 30-year interest rates hit a 45-year low of 5.21 percent a year ago. Rates have moved above 6 percent during the past several weeks and many economists predict home-borrowing costs will end the year closer to 7 percent.

But Lereah said the rising rates will be accompanied by a stronger economy. He added that the industry will be helped by demographic trends, a more competitive mortgage market and government-sponsored down payment and settlement assistance for first-time buyers. Homeownership is estimated to rise above today's record level of 68.3 percent and be over 70 percent by 2013, resulting in about 10 million additional new homeowners. The report said the industry expects a surge in homeownership among immigrants, attributing half of home purchases during the next 10 years to this population. Other demographic trends in the housing industry's favor, the report said, include retirees who are living longer, baby boomers in the market for vacation homes and first-time and minority buyers.

Total home sales, which averaged about 8.1 million in 2003, will see an increase to about 8.5 million a year over the next decade, the economists predicted.

And they expect housing prices, which rose 7.5 percent nationally last year, to rise 4 percent to 6 percent annually during the next decade. Many economists contend that home prices have risen too fast during the past several years. A number of experts predict that price appreciation will slow to 1 percent or 2 percent during the coming years.

Celia Chen, director of housing economics at in West Chester, Pa., believes that the housing group's appreciation predictions are too high.

"Strong demand over the last couple of years has been a result of very low mortgage rates and positive demographics," Chen said. "I don't think that these forces will continue forward to keep demand strong."

The group acknowledged that home prices have pushed affordability out of reach for many first-time buyers as well as workers such as teachers, police officers and nurses. The economists did not offer solutions to that dilemma but said local jurisdictions, including many in the Baltimore area, likely will find themselves dealing with such problems during the coming years. Average home prices in Baltimore and its five surrounding counties rose 15 percent last year and 11 percent in 2002.

Newlyweds Sarah and Nick Rubino, who just moved into their first home in Perry Hall Wednesday, saw prices increase by up to $20,000 since beginning their search in February. Homes similar to the $165,000 townhouse they bought last week were priced in the mid-$130,000s a year ago.

"These are insane prices, and I feel we got in just right under," Sarah Rubino said. "We wanted to take advantage of the very low interest rates, because, after seeing the difference in prices since last year, it would be taking a chance to wait any longer."

Bloomberg News contributed to this article.

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