Tuesday, January 20, 2004
Copyright © Las Vegas Review-Journal
Home sales should remain strong
Mood at start
of Builders Show
mostly positive
By HUBBLE SMITH
REVIEW-JOURNAL
The Ultimate Family Home, seen from the back, was unveiled by Pardee in conjunction with International Builders Show.
Photo by Clint Karlsen.
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Like most economists, David Seiders of the National Association of Home Builders takes a conservative approach to predictions.
Seiders said home sales in the United States will drop about 3.5 percent this year after three record years as mortgage interest rates move modestly higher.
"There certainly is a chance we could do better than 2003 if long-term rates don't go up," Seiders said Monday at the International Builders Show in Las Vegas.
New-home sales are projected to fall to 1.05 million in 2004, compared with 1.08 million in 2003. Existing home sales are forecast to dip from 6.08 million in 2003 to 5.9 million in 2004.
Fixed-rate mortgages are expected to go from 5.9 percent to 6.4 percent by the fourth quarter, roughly half a percentage point in a year.
Seiders said tax cuts by the Bush administration and a somewhat successful resolution of the Iraq situation helped stimulate economic growth in the second half of the year.
Still, the Federal Reserve found reason to drop prime rates to 45-year lows.
"One thing behind that is an ongoing, almost grinding down of inflation in the United States to the point where the Feds are concerned about deflation," Seiders said. "That's one of the reasons they want to keep the monetary policy very stimulative."
Frank Nothaft, chief economist for Freddie Mac, said he sees good times continuing in the housing market with income gains driving real gross domestic product growth.
"When you have a combination of family incomes growing and mortgage rates staying low, that translates into strong housing sales," he said.
Slightly higher interest rates will choke off some construction and sales activity, with starts slipping 5 percent to 1.75 million dwellings and new and existing home sales down 3 percent to 6.98 million, he said.
Nothaft sees 5 percent to 6 percent appreciation of U.S. housing prices in the coming year in both new and existing product, though location, development costs and amenities may drive prices higher.
Although leading indicators for the pace of housing activity fluctuated in recent months and edged down toward the end of the year, they remain at fairly high levels, suggesting that home sales should stay strong, said David Berson, vice president and chief economist of Fannie Mae.
"The Fed would like to see core inflation move up before it tightens monetary policy," he said. "It's certainly going to keep the Feds on the sidelines for a while."
It would take a terrorist attack or a spike in oil prices to $50 or $60 a barrel to disrupt economic growth, Berson said.
"But we think those have a low probability of occurring," Berson said.
The continued strong pace of home sales, even with a decline of 4 percent, combined with home price gains of about 5 percent, should produce purchase originations in 2004 slightly above last year's estimated record, climbing by about 1 percent to $1.18 trillion, Berson said.
