A runaway real estate market this year has many economists and even Fed Chairman Alan Greenspan fretting about the housing bubble. But the people who sell real estate for a living predict a soft landing for the red-hot market, not a crash that could wipe out homeowners' gains of the last three years.
The Federal Reserve raised short-term interest rates for the 10th consecutive time today, lifting its short-term rate target to 3.5% from 3.25% and signaling that more increases are to come. The Fed ist rying to deal with strengthening economic growth, a slightly less favorable inflation picture and still-low long-term interest rates.
The housing market is probably close to a peak right now in terms of sales activity, but there is tremendous momentum," said David Lereah, chief economist for the National Association of Realtors. "Sales are expected to coast at historically high levels into next year, but they will trend slightly downward.
In other words, much of the years market gain has already been achieved. Lereah predicts existing-homes will end the year up 2.9 percent to 6.98 million units, while new-home sales will rise 4.8 percent to 1.26 million this year. Total housing starts -- single-family and multifamily -- should grow by 3.2 percent to 2.02 million units in 2005, the highest since 1978; single-family starts are projected to set a record of 1.67 million.
Home sales should be fairly stable in the near term, Lereah predicts.
Is now the time to buy? Its not often a real estate agent counsels patience, but thats exactly what it sounds like NAR President Al Mansell, a Salt Lake City broker, is doing.
"It's a great time to sell, but it may be a better time to buy about a year from now when the market should come closer to balance, he said.
Mansell says the risk in waiting is not that home prices will escalate, but that interest rates will be higher, making the cost of financing a home higher. But consumers who plan to put a sizable amount down might not be affected all that much.
It all gets down to a buyer's needs, resources and time horizons, Mansell said.
The national median existing-home price for all housing types is forecast to rise 10.5 percent in 2005 to $204,600, while the median new-home price should increase 5.2 percent to $232,400.
The 30-year fixed-rate mortgage is projected to rise slowly to 6.2 percent in the fourth quarter, and reach 6.6 percent by the end of 2006.