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US sales to hold steady for rest of year

15/08/2006

The National Association of Realtors (NAR), America's largest trade association for the real estate industry, has predicted little change in overall sales levels over the rest of 2006 in the US housing market. David Lereah, NAR's chief economist, said that new home sales and housing starts (new houses being built) have been fluctuating, so the overall market is stabilizing.

“On one hand, is the rise in mortgage interest rates that has slowed sales in many higher-cost markets, and on the other is 3.8 million new jobs over the last two years,” Lereah said. “This means many potential home buyers could enter the market in the foreseeable future, especially in moderately priced areas where affordability conditions remain favorable. In fact, this is already occurring.”

Although the NAR is predicting that sales will continue at a fairly steady pace for the rest of the year, falling sales earlier in the year mean that annual totals will be lower overall. Existing home sales are forecast to fall 6.5 percent to 6.61 million for this year as a whole, but this is still the third highest figure for the US market on record after 2005 and 2004. New-home sales are projected to drop 12.8 percent in 2006 to 1.12 million, also the third best on record. Housing starts should be down 9.1 percent to 1.88 million this year.

A buyer's market

The 30-year fixed-rate mortgage is running nearly a percentage point higher than a year ago but is likely to rise very slowly in the months ahead, reaching 6.9 percent in the fourth quarter, the NAR have said. NAR President Thomas M. Stevens said current market conditions are favorable for buyers.

“The rise in housing supply is the biggest change in the market over the last year,” said Stevens. “Clearly, this has taken pressure off of home prices and has significantly widened choices for buyers.”

The national median existing home price (the "middle price" of all homes excluding new builds) for all housing types is forecast to grow 4.3 percent this year to $229,000, while the median new home price is expected to rise only 0.5 percent to $242,100 as builders start to offer incentives to clear unsold inventory.

The US economy still seems to be in reasonable shape. The unemployment rate should average 4.7 percent for the balance of the year. Inflation, as measured by the Consumer Price Index, is likely to be 3.5 percent for 2006, while growth in the U.S. gross domestic product is projected at 3.5 percent. Significantly, inflation-adjusted disposable personal income is expected to grow 3.0 percent this year.