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U.S. Housing Expected to Remain Healthy in 2005
Nov 1, 2004
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Activity in the booming U.S. housing industry should hold up at fairly robust levels into 2005, according to the consensus of economists participating in the National Association of Home Builders’ (NAHB) Construction Forecast Conference in Washington, D.C., U.S. The conference, held twice yearly, brings together top experts from across the housing industry to discuss topical issues.

Panelists were largely optimistic about prospects for the residential construction industry, economic growth, job growth, and inflation as the Federal Reserve continues to gradually push up interest rates and the fiscal stimulus of the Bush Administration’s tax cuts begins to fade.

High oil prices were identified as the wildcard in the scenario. While hard to predict, energy costs were expected to subside next year from current record levels after taking a small bite out of economic output and consumer confidence in the short term.

“The housing market has been nothing short of phenomenal, especially anything that smacks of homeownership,” said NAHB Chief Economist David Seiders. But the nation’s housing market is in the process of “reaching its limits” and “topping out,” he said.

With activity “flattening in 2005,” Mr. Seiders is forecasting a decline in housing starts next year of about 4.2 percent to 1.85 million units, down from the 1.935 million starts projected for this year. Sales of new single-family homes are forecast to drop 5.2 percent from a record of more than 1.16 million this year to about 1.1 million.

Single-family production is poised to set another record this year, Mr. Seiders said, and the fundamentals of the market will remain good in 2005 even though some households may have moved up their home-buying plans from next year to this year when they saw mortgage interest rates starting to rise. With inventories lean and demand continuing to ride high, the single-family market “hasn’t sewn the seeds of its own destruction,” he said.

Multi-family production continues at an annual pace in the 340,000-unit range, he said, even though demand in this sector has been softened by the allure of homeownership for renter households. Rental vacancies were down a bit in the third quarter, he noted, but remained near record levels, and condominiums have been on an upswing.

With the tremendous rise of home equity, which is approaching U.S. $9 trillion, Mr. Seiders said that home owner expenditures for additions and alterations should keep the residential remodeling industry growing next year. Annual volume is currently in the $220-billion to $225-billion range.

Looking at household formations and immigration growth, he gauged demand for single-family and multifamily housing at an annual average of 1.8 million units through 2013.

NAHB is forecasting that fixed-rate mortgages will average 6.5 percent in 2005, up from 5.9 percent this year, which would leave the cost of home financing at relatively affordable levels.

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