“Economics is the only field in which two people can get a Nobel Prize for saying the opposite thing.” –well-known economist joke.
Each year, Inman News reports on what the major trade group economists are forecasting for real estate the coming year. This year, when we caught up with housing gurus to talk about their 2005 forecasts, we decided to look back at what they told us last year to see how their original predictions played out.
Here’s a look back at what the trade groups originally predicted was in store for 2004, compared with what each is now predicting for this year totals. We also include what they are now forecasting for 2005.
The National Association of Realtors
National Association of Realtors chief economist David Lereah sees 2005 as a strong year, but not a record-breaker like 2004.
“All of our numbers still look like the second-best year ever,” Lereah said. “But for the last three years, I’ve been projecting a second-best year ever and I’ve been wrong. It’s been the best year ever.”
By the end of next year, Lereah anticipates interest rates on the 30-year fixed-rate mortgage will be about 6.9 percent, a full percentage point higher than they are now. But he expects the rise will be gradual and not cause a big shock to the housing industry, which currently has the factors in place for continued success.
“The fundamentals are all good in housing right now,” Lereah said. “The supply is lean, demand is still strong, households can still afford to buy the homes and that’s the important thing.”
Mortgage Bankers Association
Doug Duncan, chief economist for the Mortgage Bankers Association, anticipates interest rates on the 30-year fixed-rate mortgage to rise to about 6.25 percent by the end of 2005. But Duncan doesn’t believe the higher rate will cut into the home purchase market much. Any rate increases, however, will whittle away what’s left of the refinance market.
“It’s going to be a pretty good year, but it won’t be as good as 2003 or 2004,” Duncan said.
Considering how those years turned out, that’s certainly nothing to sneeze at. It’s all about perspective, Duncan said.
“Part of the problem that everyone talks about is that it’s been so great for so long that expectations have to be adjusted,” Duncan said.
National Association of Home Builders
NAHB’s chief economist, David Seiders, has said that while new-home inventories will remain lean and demand high, 2005 will bring about a flattening in the new home market.
The housing market has been “nothing short of phenomenal,” Seiders said at NAHB’s construction forecast conference earlier this year. Yet, he said, the housing market is in the
process of “reaching its limits” and “topping out.”
In both new home sales and housing starts, Seiders is forecasting a slight decline from 2004 projected totals. Like other economists, he expects interest rates to rise next year. Unlike other economists, NAHB doesn’t release a forecast for median home prices.
California Association of Realtors
The California housing market is watched closely nationwide. This year, some markets in southern California saw signs of softening, with inventories rising and price appreciation rates slowing down.
Leslie Appleton-Young, chief economist for the California Association of Realtors, calls her prediction for 2005 a “soft landing” for the state’s housing market.
“2004, by all indications, looks to be the peak of this market cycle,” Appleton-Young said.
She anticipates news year to be remain strong, with California’s median home price increasing by about 15 percent. However, that figure doesn’t show that inland areas that tend to have more affordable housing will be the areas to experience the higher price appreciation rates. Areas along the state’s coast will see smaller price gains, she said.
*CAR’s affordability index is the percentage of households able to afford a median-priced home.
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