January 11, 2006
What can home buyers and sellers expect from the real estate market in 2006? Increasingly it appears as though the market has peaked, and even real estate agents say thats not a bad thing.
"We don't need to break a record every year for the housing market to be good -- in fact, cooling sales are necessary for the long-term health of this vital sector," said David Lereah, chief economist for the National Association of Realtors.
"A modest slowdown in home sales, coupled with improvements in housing inventory, means the market is in the process of normalization. That will help to bring balance between home buyers and sellers, yet sales will remain historically strong."
The red hot housing market has set records for sales five years in a row, with median prices in some markets doubling. The rapid appreciation, far faster than the stock market, has drawn a flood of speculators, leading economists to worry about a housing bubble.
In 2006, realtors say they expect existing-home sales to dip as much as 4.4 percent to 6.79 million units. But Lereah is quick to point out that even with that much of a decline, sales would be the second highest on record. In other words, homeowners should not have to worry about a collapse in the value of their property.
New-home sales, meanwhile, are expected to decline 6.0 percent to 1.21 million in 2006 but again, that also would be the second best year in history. Total housing starts for 2005 are seen at 2.07 million units -- the highest since setting a record 1972 -- with a 6.6 percent slowing to 1.94 million this year.
"A lot of demand has been met over the last five years, and a modest rise in mortgage interest rates is causing some market cooling," Lereah said.
"Along with regulatory tightening on nontraditional mortgages, there will be fewer investors in the market this year."
Lereah said he expects the 30-year fixed-rate mortgage is likely to trend up gradually to 6.7 percent during the second half of the year, keeping price appreciation at more normal levels. The national median existing-home price for all housing types, projected to jump 12.9 percent to $209,100 for 2005, is forecast to rise 5.1 percent to $219,700 this year. The median new-home price, which should be up 4.6 percent to $231,300 for 2005, is expected to increase 6.0 percent this year to $245,200.
