The hot U.S. housing market will hit records in 2005 but begin to cool off in 2006, the Mortgage Bankers Association said Tuesday in a forecast that changed earlier predictions of a slowdown this year.
The group said sales of both new and existing homes will hit new highs for the fifth consecutive year as long-term, fixed mortgage rates climb gradually through the end of 2005.
Existing home sales should increase 2 percent this year but decline by 3 percent in 2006 while new home sales rise 2 percent in 2005 and then drop 4 percent in 2006, Mortgage Bankers Association Chief Economist Doug Duncan said.
Fixed 30-year mortgage rates should climb to an average of 5.7 percent in the fourth quarter of 2005 and continue pushing higher to hit about 6.3 percent in 2007, he said. The 30-year fixed-rate mortgage averaged 5.62 percent last week, according to mortgage finance company Freddie Mac.
Duncan’s projections follow previous predictions of a slowdown in housing this year after more than four years of robust activity.
In January, the Mortgage Bankers Association said sales of existing homes would drop 7.2 percent in 2005 while new home sales fell 6.1 percent. Long-term rates, the group then said, would climb 50 basis points to 65 basis points by the end of 2005.
But long-term rates have not risen. In fact, mortgage rates are lower than a year ago, according to Freddie Mac data.
Duncan said low long-term rates would continue to support residential and commercial real estate activity.
“Despite a moderate increase from a currently low rate environment, interest rates will still be quite low by historical standards,” Duncan said.
The high-flying housing market has surprised others as well this year. In June, the National Association of Realtors’ chief economist boosted his target for existing home sales to a record after earlier forecasting the start of a slowdown in 2005.