The housing industry's biggest trade group Tuesday lowered its forecast for U.S. home sales this year and called on the Federal Reserve to stop raising interest rates because parts of the housing market are “vulnerable.”
“Experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability,” said David Lereah, the group’s chief economist.
“But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable,” he said.
The trade group, in its monthly forecast, projected sales of existing homes would fall 6.8 percent to 6.6 million this year from the 2005 record of 7.08 million. Sales of new homes are projected to decline 13.4 percent to 1.11 million from a record 1.28 million last year.
The forecast is slightly below the group’s earlier 2006 sales projection of 6.62 million existing homes and 1.13 million new homes.
The Realtors also projected housing starts will 6.2 percent to 1.94 million in 2006 from 2.07 million last year.
The U.S. housing market has been steadily cooling down after a five-year run that shattered sales and construction records. The market began to slow last year as mortgage rates started to climb.
Buyers are currently committing to an average 6.67 percent interest on new, 30-year fixed-rate mortgages, compared with about 5.5 percent a year ago. That change raises the monthly cost $150 for a $200,000 mortgage.
And while the Realtors would like to see the Fed pause, most financial market insiders are expecting the central banks to raise short-term rates again June 29 after Fed Chairman Ben Bernanke issued a warning about inflation this week.
While the housing market is expected to keep fading from its record levels, 2006 is still expected by many economists to be the third best year for housing ever.
But Federal Reserve Gov. Susan Bies Tuesday said there were signs of softening in some markets.
“The real estate markets today across the country are very strong, but there are pockets where we are beginning to see signs of trouble that are emerging,” Bies told a bankers group in Coronado, Calif.
Lereah predicts the median price for existing homes sold this year will rise 5.3 percent this year to $231,300, in line with the historic average return on housing, which is about 1.5 to 2 percentage points above inflation. The national median price rose nearly 12 percent last year.
“Broadly speaking, rising inventories have taken the pressure off of unsustainable home price growth,” Realtors President Thomas Stevens said in a news release. “For most of the nation, this means future home price gains will be much closer to the normal returns we expect from housing.”