Real Estate Home Prices to Cool in 2006 - Soft Landing Projected for Current Record Housing Boom
Below is a MRR and PLR article in category Finance -> subcategory Real Estate.
Real Estate Home Prices to Cool in 2006: A Soft Landing for the Housing Market Boom
Summary:
In 2006, the U.S. housing market is expected to transition into a more sustainable phase, with projections of 6.86 million existing home sales?"the second-highest in history.
A Transition to Stability
After a five-year surge in both existing and new home sales across numerous U.S. markets, the housing boom is anticipated to cool in 2006. Despite this slowdown, predictions from industry economists suggest the year will still finish as one of the strongest on record. Average home price appreciation is set to decrease from this year’s unsustainable 12.7% to a more manageable 5.0% next year.
Projected Sales and Market Dynamics
The current year has seen existing home sales increase by 4.8% to a record 7.11 million. However, predictions for 2006 indicate a slight decrease of 3.5%, down to 6.86 million. Similarly, new home sales?"boasting an 8.0% rise to 1.3 million this year?"are expected to dip by 4.6% to 1.97 million next year.
David Lereah, chief economist for the National Association of Realtors (NAR), notes that the market is gradually transitioning from a five-year high. Despite an anticipated rise in mortgage interest rates slowing sales, 2006 is forecasted to be the second most robust year on record. Lereah emphasizes that the housing sector will continue to bolster the overall economy, with home sales entering a more stable phase that balances buyers and sellers.
Factors Influencing the Market
HouseHunt’s national Current Market Conditions survey aligns with these projections, attributing the continued momentum to strong demand, job growth, and relatively low mortgage rates. Although homes are taking longer to sell and inventory is building outside of the most active areas, 80% of sellers are achieving between 95-100% of asking prices.
Lereah highlights the enduring influence of baby boomers in their peak earning years and the echo boomers, who are entering the housing market. However, he expresses concern over exotic mortgage options and potential tax reform impacting mortgage interest deductions.
Industry Insights
The Pending Home Sales Index, an indicator of future sales, slightly declined but remains at its second-highest level since inception. Additionally, former NAR president Cathy Whatley points out that three-quarters of current buyers utilize the Internet for home searches, often relying on real estate professionals to navigate competitive bidding situations.
According to the Mortgage Bankers Association, rising interest rates will minimally affect most homeowners. Their research reveals that 35% own homes outright, 50% have fixed-rate mortgages, and 15% hold adjustable-rate loans, with a small percentage sensitive to rate changes. The association also found that only 12.5% of homeowners allocate 50% of their income to housing, and 33% spend just over 30%.
Future Housing Needs
The U.S. population has grown by 2.9 million in the past year, with a demand for potentially 20 million new homes annually by 2015. With the population expected to increase by 80 million by 2030, approximately two million units will need to be built yearly, surpassing the current record of 1.1 million. Presently, the U.S. boasts 74.8 million homeowners.
Finally, the Mortgage Bankers Association confirms that no U.S. state has recorded a year-to-year decline in housing prices. The national median price is currently $220,000, marking a 15.8% increase over the past year.
You can find the original non-AI version of this article here: Real Estate Home Prices to Cool in 2006 - Soft Landing Projected for Current Record Housing Boom.
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